16 Blockchain Disruptions (Infographic)

Blockchain technology is claimed to be according to blockchain proponents to be one of the most impactfull discoveries in the recent history. It is promised to have a massive potential to change how we handle online transactions. Despite some skeptics, the majority of experts agree that blockchain has the potential to disrupt the banking and financial industry, and many other ones! To put it simply, blockchain enables decentralized transactions across a P2P network. There are applications where those propertied can be very useful, but there are many cases where blockchain migh not be the best solution even though it is hyped to be solution for very many application (remember to ask Do you need a blockchain? often).

This 16 Blockchain Disruptions (Infographic) by bitfortune.net tries to help you understand how the blockchain technology can and will improve 16 different industries, from music to government.

Infographic by bitfortune.net


  1. Tomi Engdahl says:

    Licking its FTX Wounds, Bahamas Steps Up Push for Digital Fiat

    FTX collapse creates headache for the nation’s CBDC rollout
    Two years after Sand Dollar’s debut, adoption is sluggish

    Before FTX Co-Founder Sam Bankman-Fried made the Bahamas synonymous with the crypto crash, the country was known as a pioneer of digital fiat.

  2. Tomi Engdahl says:

    Rohan Goswami / CNBC:
    FTX identifies ~$5.5B in “liquid” assets for recovery, including $415M in “unauthorized third-party transfers” possibly tied to a hack found after its collapse — – FTX has identified about $5.5 billion worth of digital assets for recovery, a number that includes $415 million in “hacked crypto.”

    FTX says $415 million of crypto was hacked

  3. Tomi Engdahl says:

    David Yaffe-Bellany / New York Times:
    US and Bahamian government documents detail which FTX and Alameda executives had discussed the crypto exchange using customer funds before FTX’s collapse — Documents obtained by The New York Times provide new details about the discussions among FTX’s top leaders before the cryptocurrency exchange collapsed in November.


  4. Tomi Engdahl says:

    Analysis: 196 members of the new Congress accepted donations from Sam Bankman-Fried or other FTX senior executives, including Kevin McCarthy and Chuck Schumer — The session began with 196 U.S. lawmakers who took direct contributions from Sam Bankman-Fried and other former FTX executives …

    Congress’ FTX Problem: 1 in 3 Members Got Cash From Crypto Exchange’s Bosses

    The session began with 196 U.S. lawmakers who took direct contributions from Sam Bankman-Fried and other former FTX executives, and many of them are still trying to get rid of it.

    More than one in three of the 535 senators and representatives in the U.S. Congress showed up to the new session with FTX baggage, having received campaign support from one of the senior executives of the fraud-ridden crypto giant.

    CoinDesk has identified 196 members of the new Congress – many of whom were just sworn in last week – who took cash from Sam Bankman-Fried or other senior executives at FTX, a crypto exchange that filed for bankruptcy in Delaware in November after CoinDesk revealed unusually close ties between FTX and Alameda Research, an affiliated hedge fund. The names in Congress range from the heights of both chambers, including new Speaker of the House Kevin McCarthy (R-Calif.) and Senate Majority Leader Chuck Schumer (D-N.Y.), down to a list of recipients new to high-level politics.

    After the lawmakers received the money, it became clear – according to the work of journalists, the criminal charges and admissions of guilt from FTX insiders – that the funds sprang from this colossal financial swindle. CoinDesk reached out to all 196 lawmakers to ask what they would do with the money.

    Most of the politicians who responded said they handed it over to charities to remove the taint of contributions from executives such as former FTX CEO Bankman-Fried, whose federal fraud charges also include an accusation that he violated campaign-finance laws. Others have revealed they had conversations with the U.S. Department of Justice about setting aside the money until it can be dropped into a fund to compensate FTX victims.

  5. Tomi Engdahl says:

    Andrew Asmakov / Decrypt:
    Dune Analytics: the number of smart contracts deployed on the Ethereum mainnet grew 293% YoY in 2022 and 453% QoQ to 4.6M in Q4 2022, just as FTX collapsed

    Ethereum Smart Contracts Deployment Jumped 293% in 2022: Alchemy Developer Report

    Compared to 2021, the number of smart contracts deployed on Ethereum soared nearly 300% in 2022, according to a new report from Alchemy.

    Despite the fierce headwinds the crypto industry faced over the last year, Web3 development activity has grown at an impressive rate, according to a new report.

    One such key indicator is the number of smart contracts deployed on the Ethereum mainnet, which grew 293% as compared to 2021, reaching rates that resembled the peaks of the previous year, per the “Q4’22 State of Web3 report” released today by blockchain software and development company Alchemy.

    Despite the fierce headwinds the crypto industry faced over the last year, Web3 development activity has grown at an impressive rate, according to a new report.

    One such key indicator is the number of smart contracts deployed on the Ethereum mainnet, which grew 293% as compared to 2021, reaching rates that resembled the peaks of the previous year, per the “Q4’22 State of Web3 report” released today by blockchain software and development company Alchemy.

  6. Tomi Engdahl says:

    Abha Bhattarai / Washington Post:
    At the World Economic Forum in Davos, Circle, Hedera, and other crypto companies hope to resuscitate the industry’s image after FTX and attract new investors


  7. Tomi Engdahl says:

    Nate Freeman / Vanity Fair:
    A look at the art world’s deal-with-the-devil approach to the NFT market, after allegations that FTX bought the $24.4M trove of 107 Bored Apes NFTs at Sotheby’s

    SBF, Bored Ape Yacht Club, and the Spectacular Hangover After the Art World’s NFT Gold Rush

    Auction houses and talent agencies thought the Web3 works were a fast track to billions. If it weren’t for a global crypto meltdown, they might have pulled it off.

    In September 2021, Sotheby’s offered up for auction a cache of 101 Bored Ape NFTs as a lot in a special sale called Ape In! The digital art revolution had seemingly remade the art market in the months prior, and this was the finest collection of non-fungible tokens ever assembled by one of the world’s oldest auction houses, founded in 1744. Scrolling through the catalog of cartoon monkeys in funny hats and jackets, one could see one rare Bored Ape with solid gold fur and holographic eyes, but also rarer yet, the Ape with an unshaven face eating a piece of pizza. For digital-art enthusiasts who aspired to membership in the Bored Ape Yacht Club, this was a huge deal.

    The house was confident that Ape In! could ride the NFT momentum that had been building since the prior spring—one that began when Everydays, a work by the digital artist Beeple, sold at Christie’s for $69 million—and move these online pictures of weird primates to the tune of millions. A promotional video showed the cartoon monkeys in DJ booths spinning EDM at a party in what appeared to be Sotheby’s global headquarters on York Avenue in Manhattan. Young and ambitious specialists in the house’s digital-art department, a brand-new endeavor, bullishly offered the lot at an estimate of somewhere between $12 million and $18 million.

    Instead, the lot of 107 NFTs sold for $24.4 million, smashing records for Bored Apes. What newly minted patron of the digital arts snagged this for eight figures? Sotheby’s wouldn’t comment on the buyer apart from saying that among those heavily involved in the bidding were legacy art collectors.

    “We’re seeing a growing number of traditional art buyers getting interested in NFTs,” Michael Bouhanna, cohead of digital art sales at the house, told ARTnews at the time. And why not? Some thought these monkeys with headgear and lasers for eyeballs could be worth billions in our not-so-distant virtual lives. Bored Ape Yacht Club, created by Yuga Labs, the outfit behind Bored Apes, which minted 10,000 unique iterations of the form in April 2021 and sold them for about $190 a po

    Increasingly, it looks as though the buyer was not a traditional art collector or even a human person that other Ape owners could welcome to a club. The blockchain is an opaque-at-best space, but in the months following the purchase, some close observers have settled on the idea that the buyer of the Apes at Sotheby’s was FTX, the crypto exchange that recently crashed and burned, resulting in an inquiry into the possible market machinations of its founder, Sam Bankman-Fried, who is currently charged with crimes related to the overnight disappearance of billions of his investors’ funds in the fall. (Bankman-Fried has pleaded not guilty and, in a statement, said he “did not steal funds.”)

    The evidence, per Blockchain Twitter, boils down to this: A few months after the Sotheby’s sale, FTX had listed the 101 Apes on a page detailing its NFT holdings. When FTX launched its NFT sales platform in December 2021, some of the Apes FTX had available to sell were clearly identifiable from the Sotheby’s sale three months earlie

    When a new crypto denomination, ApeCoin, debuted in March 2022, $8 million worth of the stuff was transferred from the digital wallet that made the purchase at Sotheby’s back to Alameda Research. Alameda is the sister firm of FTX where, complaints allege, Bankman-Fried could park his missing billions.

    And what firm was a prominent part of Yuga Labs’ $450 million fundraising round in 2022? That would be, you guessed it, FTX.

    If Blockchain Twitter’s sleuthing bears out—and they really do seem to have the receipts—what we’d have is a major Yuga Labs investor inflating the value of Yuga Labs’ most valuable asset by bidding it up at auction. With Bankman-Fried now facing charges of fraud, money laundering, and campaign finance violations, his trove of Bored Apes remains in the FTX wallet. The old link to the NFT collection now goes to a claims agency.

    SBF and the Mystery of the 101 Apes (working title) is emblematic of the art world’s deal-with-the-devil approach to the NFT market, a golden goose cut open and killed by those seeking the source of the bullion. During the bull years—well, months, really—of the phenomenon, auction houses built up their digital art departments (Sotheby’s Metaverse, Christie’s 3.0, etc.) and even the galleries established separate wings to pump out NFT sales, most notably Pace Verso. Hollywood talent agencies hired Silicon Valley–adjacent fixers to score content deals to make movie franchises from NFT IP. In 2021, an estimated $2.6 billion in art NFTs were sold, and anyone in the art market that hopped on that gravy train seemed to be getting a cut.

    And then in mid-2022 the bottom fell out. In July, crypto hedge fund Three Arrows Capital went belly up, leaving investors both big and small holding the bag. Genesis Capital had put billions into 3AC—all gone. Terra, a $60 billion South Korea–based crypto exchange, imploded spectacularly, causing its stablecoin, UST, to collapse and its token, LUNA, to fall from a price of $80 to pennies. And then the FTX zeppelin fire brought the crypto crisis to the front pages, causing a global sell-off of risky assets. The cheapest available Bored Ape in April 2022 was $430,000, and earlier that year Justin Bieber reportedly had to pay $1.3 million to get his. In the days after FTX imploded, Apes were available for as little as $76,000.

    “Oh, the bubble burst,” Kimberly Grauer, the head of research at crypto data firm Chainalysis, and an expert on trends in cryptocurrency economics and crime, recently told True Colors. “People stopped viewing it as a way to make money via speculation. It dried up, it cooled down. People were less eager to put their money in NFTs than they were before.”

    The crisis has forced economists, cultural prognosticators, art world rubberneckers, and tech world cheerleaders to collectively grapple with the phenomenon that we witnessed. Was it a legitimate burst of enthusiasm for a revolutionary way to create and sell a new kind of art? Or a tulipomania speculation bonanza that was driven purely by greed and hype? Here’s another way of framing the question: The art world figures who presumably know better—were they selling snake oil to marks? Or did they really believe in the value of these digital-token things?

    “Does a real estate broker feel any obligation to tell you that you’re in a real estate bubble, and you shouldn’t buy this?” Evans said. “No. That’s not their job. Their obligation is still to the seller.”

    For more insight into how the sky-high prices of certain NFTs got built up, there’s an explosive lawsuit making its way through the US District Court in the Western Division of the Central District of California that takes aim at the founders of Bored Ape and their most famous fans.

    The suit, which is seeking class-action status for buyers of Apes or ApeCoin, weaves a narrative of alleged crypto fraud, Hollywood machismo, social media spamming, celebrity worship, and a little bit of Bono. Ultimately, it alleges that the rise of the planet of the Bored Apes was nothing more than a scheme to make the monkeys look like assets that celebrities and art dealers were spending millions to obtain. Those transactions were staged, the suit claims: The famous and influential were getting their Apes gratis and were being paid to promote the stuff, a fact they failed to disclose.

    “These famous celebrities, they’re getting in, and they’re going to cause a spike in the price as they continue to interact in the ecosystem. They’re part of the club, and more people are going to want to be a part of the club with the celebrities to have these,”

    Perhaps you noticed in early 2022 that nearly every celeb was on a crypto company payroll—Stephen Curry was making bank as the spokesperson for FTX and various celebrities were putting up Instagram Stories about their pricey NFTs. And there was that Larry David Super Bowl ad.

    While the lawsuit is in its earliest stages, it may have already provided some much-needed context to one of the more baffling exchanges of our entire pandemic-era screen consumption: the “I bought an Ape” back-and-forth between Jimmy Fallon and Paris Hilton on The Tonight Show in January 2022, in which the pair, Ape owners each, discussed the finer parts of NFT shopping.

    In the auction world, the sale of the digital future was a relatively subtle proposition: The houses needed to incept the cultural cognoscenti and implant the idea that NFTs are art.

    But it doesn’t quite matter if it’s art—auction houses sell wine and constitutions and sneakers and watches and first editions. If it’s selling, you sell it.

    “It’s like Hollywood making movies about how Hollywood sucks. You actually embrace it,” Evans, our crypto sherpa, said. “Like, yeah, I’ll take that money.”

    The auction houses have their boilerplate explanations of why a certain NFT should be contextualized as art, making sure that they remain as devoted as ever to the seller, not the buyer.

    Did Beeple really “achieve something historic” when Christie’s slotted his NFT-cum-walking-man-sculpture, Human One, into its evening sale between paintings by Issy Wood and Stanley Whitney?

    “I think the concept of an NFT can have intrinsic value, and that a token can represent value in some fashion, and I think there’s value in people liking the look of the artwork,” he said. “But in terms of it being a financial product and how they were marketed and how they were sold, it really is an unregistered security and it needs to be subject to proper disclosure. And once you get into generating all that hype around the Bored Ape itself, they release the ApeCoin token, which doesn’t even have the pretense of a piece of art or anything. And that’s just a straight-up unregistered security that is used for speculation and for trading.”

    Evans offered another conundrum. When a market offers something for sale at a large sum, there is, at a base level, an understanding among the public that it has some legitimate importance. Perhaps the artwork is not to one’s liking, but it has a provenance and the artist is in museum collections—or there’s historic relevance to something that makes it at the very least a curio.

    “When you are buying vintage vinyl, or rare sneakers, or Marilyn Monroe’s shoes, or a Salvador Dalí print, or whatever it is, you’re getting something that has no tangible physical value, but cultural value,” Evans said. “There’s like a deep cultural base that thinks Jordan sneakers are worth something, early Sex Pistols vinyl is worth something. And the challenge with all of these NFTs was you didn’t really know that there was that broad, deep cultural base. It was just: ‘Oh, my gosh, somebody just bought one for 200 grand.’”

    For the time being, some in the art world are still acting as though the devotion to NFTs could result in some kind of windfall. Sotheby’s Metaverse has a sale up right now. It’s offering the first NFTs by the artist Sebastião Salgado, but they aren’t exactly lighting the place on fire. They cost $250 each. Back in 2021, the Natively Digital sale netted Sotheby’s $17 million, with $11 million paid for a single NFT from the series of CryptoPunks.

    But in February 2022, Sotheby’s set up a special sale where it expected a set of 104 CryptoPunks to go for as much as $30 million, only to see the thing collapse minutes before the gavel-in when the consignor backed out, reportedly due to a lack of interest from bidders. By last December, the Natively Digital sale seemed to have lost its luster entirely. Sotheby’s offered the first-ever Keith Haring NFT as the star lot of the sale, but it sold for $25,000, well below the $80,000 high estimate.

    Things aren’t much better at Christie’s, where the NFT platform Christie’s 3.0 has a smattering of work for sale, mostly in the low four figures. Despite the fact that the auction house launched an on-chain marketplace in the Web3 space in 2022, sales of the stuff were way, way down year to year. In 2021, the house sold $150 million in NFTs. In 2022, sales were just $5.9 million, a 96% downturn. And it’s not like Christie’s had a bad year that dragged down the digital sector: The house saw a record $8.4 billion in top-line sales, and NFTs were just 0.07% of the total.

    There’s no definitive way to say whether the NFT market will ever come back.

    One tech entrepreneur seems to have found a solution. In 2022, Skyler Hallgren launched Unsellable, a start-up that purchases worthless NFTs for a penny as a way to provide a tax write-off. It’s proven quite popular with collectors looking to exit the space as quickly as possible, those who have accepted the fact that these once-promising investments are, in fact, devoid of value. The Unsellable Collection, the start-up’s vast haul of worthless digital detritus, is currently home to 4,800 objects.

  8. Tomi Engdahl says:

    The US Treasury’s FinCEN unit labels crypto exchange Bitzlato as a “money laundering concern” related to Russian illicit finance; French police seize Bitzlato — The U.S. Treasury Department’s Financial Crimes Enforcement Network on Wednesday said it has identified virtual …

    U.S. arrests Bitzlato cofounder, alleges $700 mln of illicit funds processed

  9. Tomi Engdahl says:

    New York Times:
    Crypto investors say Sam Bankman-Fried frequently promoted and manipulated “Samcoins”, including Solana, Serum, FTT, and Maps, to benefit FTX and Alameda — Sam Bankman-Fried found ways to control the prices of digital coins to benefit his companies, FTX and Alameda, according to cryptocurrency investors.


  10. Tomi Engdahl says:

    Alexandra Wexler / Wall Street Journal:
    FTX posed as a haven from tumbling currencies and inflation in Africa, where the company recruited users via glitzy events, $5 sign-up bonuses, and giveaways

    In Africa, FTX Posed as Haven From Tumbling Currencies, Inflation
    Cryptocurrency exchange’s ambassadors recruited new customers through glitzy events, $5 sign-up bonuses and giveaways

    Weeks before cryptocurrency exchange FTX filed for bankruptcy, dozens of young Nigerians in skintight dresses and brightly colored suits shimmied under limbo bars, posed for photos in front of the company’s logo and sipped expensive liquor at a swanky beachfront venue.

    The party in Lagos, Nigeria, was part of the Bahamas-based exchange’s push into Africa, where, in the final days before its implosion, FTX was aggressively recruiting new customers whose funds are now stuck in bankruptcy proceedings. U.S. prosecutors have charged FTX’s founder, Sam Bankman-Fried, with fraud for allegedly stealing billions of dollars of customer funds from FTX and of defrauding investors and lenders to his trading firm, Alameda Research. He has pleaded not guilty.

    Behind the glitzy facade of events like the Oct. 8 Lagos party, FTX targeted new customers in Africa with the more bread-and-butter promise that so-called stablecoins, tokens whose value is supposed to be pegged to the U.S. dollar, along with 8% annual interest on tokens, offered protection against tumbling local currencies and runaway inflation.

    That message was particularly attractive this past year, when the Federal Reserve’s interest-rate hikes and concerns over a pandemic-era buildup in public debt drove the dollar to record highs against African currencies such as the Nigerian naira and the Ghanaian cedi. Foreign-exchange restrictions in many African countries also mean that dollars are often inaccessible to ordinary savers except at a hefty premium on the black market, making cryptocurrencies an enticing alternative.

    Compared with crypto users in the U.S. or Europe, African traders usually invest much smaller amounts and are more likely to use their tokens to preserve savings, pay for day-to-day purchases and send money across borders, according to Kim Grauer, head of research at Chainalysis, a New York-based blockchain analysis firm. In sub-Saharan Africa, 80% of all crypto transfers are for amounts under $1,000, compared with 71% in North America, according to Chainalysis.

    “Most of the people we meet with in Africa are not using extra funds, they’re putting their livelihoods on the line to put food on the table,” said Ray Youssef, chief executive of Paxful, a Delaware-based peer-to-peer bitcoin marketplace popular in Africa. “And now [those who invested with FTX] will most likely never see their funds again.”

    “One of my biggest regrets continues to be letting down customers and employees of FTX,” Mr. Bankman-Fried said via a spokesman on Friday.

    FTX was handling about $500 million in trading volume a month in Africa, with the bulk coming from Nigeria

    “We know how to play the game. We know how to get people involved,” he said.

    Mr. Okedinachi said FTX set him targets of $1 million in trading volume from referrals that he had to hit every month, with at least $100,000 coming from new referrals. The pay wasn’t great, he said, but declined to provide details.

    Campus ambassadors had to organize and host a successful event, defined as having at least 500 attendees, before getting paid $200 for the event, and then being put on a monthly stipend of $200

    Mr. Atueyi said he has lost his own savings, around $1,000, which he had invested with FTX in stablecoins. “Part of the reason why I was saving it there was naira inflation,” said Mr. Atueyi. “I prefer my money in USD rather than naira.”

    FTX Africa hit a similar note when it shared an invitation to a Twitter Spaces webinar on a company-administered group on the messaging app Telegram with more than 11,000 members on Nov. 4. The webinar, called “Hedging over inflation using FTX Earn,” promised to teach attendees how to capitalize on “the recent stretch on the Naira and a ton of other currencies like Ghanian (sic) Cedis, South African Rand and Kenyan Shilling.”

    “The background of their CEO, being generous and a young guy, I really admired him—somebody of my age making the world proud,” said Muhammad Sabiu, 27, who began working for FTX Africa in August.

    FTX paid him $1,000 a month—$800 plus a $200 allowance for giveaways and marketing—provided he hit his monthly targets, Mr. Sabiu said. “Our KPI was: Create trading volume and some sign-ups.”

    “That was the major job I had,” he said. “Imagine someone was earning $800 or $1,000 in a month, and now I’m back to $50 or $100.”

    More than the money he lost, Mr. Sabiu said he feels bad for convincing many of his friends, neighbors and community members to deposit their savings on FTX.

    “When the whole thing crashed, I was ashamed of the influence I had.”

  11. Tomi Engdahl says:

    Kevin Simauchi / Bloomberg:
    Crypto lender Genesis Global Capital has filed for Chapter 11 bankruptcy in New York, listing the estimated range for both assets and liabilities from $1B-$10B

    Crypto Lender Genesis Files for Bankruptcy as Crisis Spreads

    Crypto platform’s insolvency is latest in FTX fallout
    Top 50 unsecured claims amount to about $3.4 billion

    Cryptocurrency lender Genesis Global Holdco LLC filed for bankruptcy, the latest firm to collapse in the aftermath of the FTX exchange’s swift downfall and last year’s rout in digital assets.

    The company, plus subsidiaries Genesis Global Capital LLC and Genesis Asia Pacific Pte, filed for Chapter 11 protection on Thursday in the Southern District of New York, court documents show. Genesis Global Capital listed the same range, $1 billion to $10 billion, for both assets and liabilities as well as over 100,000 creditors — the top 50 unsecured claims amount to about $3.4 billion.

  12. Tomi Engdahl says:

    Wall Street Journal:
    In his first interview, FTX CEO John Ray III says he set up a task force to explore restarting the exchange, saying customers praised its technology, and more — In his first public interview since taking over the failed cryptocurrency exchange, John J. Ray III said that he’s open to the idea of rebooting operations

    New FTX Chief Says Crypto Exchange Could Restart

    In his first public interview since taking over the failed cryptocurrency exchange, John J. Ray III said that he’s open to the idea of rebooting operations

    FTX’s new chief executive, John J. Ray III, said he is looking into the possibility of reviving the bankrupt crypto exchange as he works to return money to the failed company’s customers and creditors.

  13. Tomi Engdahl says:

    James Eyers / Australian Financial Review:
    National Australia Bank creates the AUDN stablecoin, minted on Ethereum, becoming the second major Australian bank to create a stablecoin, after ANZ

    NAB creates a stablecoin in boost for digital economy

    National Australia Bank has become the second of the major banks to create a stablecoin, called the AUDN, to allow its business customers to settle transactions on blockchain technology in real-time using Australian dollars and highlighting the role of banks driving innovation in the digital economy.

  14. Tomi Engdahl says:

    International Arrests Over ‘Criminal’ Crypto Exchange

    The owner of China-based cryptocurrency exchange Bitzlato was arrested in Miami on Wednesday, along with five associates in Europe, during an international operation against “darknet” markets.

    Anatoly Legkodymov, 40, a Russian living in Shenzhen, China, appeared in handcuffs and leg shackles in a Miami courtroom on money laundering charges, and was denied bail by a judge who deemed him a flight risk.

    He was detained for his role in allegedly transmitting a total of $700 million in illicit funds, the US Department of Justice charged, with officials saying that criminals used the exchange as a haven for narcotics trading and selling stolen financial information.

    Five other men, mainly of Russian and Ukrainian nationalities, were arrested in Spain, Portugal and Cyprus, as part of a complex police swoop led by French authorities, officials in Paris said.

  15. Tomi Engdahl says:

    Alexander Osipovich / Wall Street Journal:
    Genesis Global Capital’s bankruptcy marks the end of an era of crypto lenders trying to bring the centuries-old banking model to digital currencies

    Genesis Demise Marks End of Era for Crypto’s Pseudo-Banks
    Risk in crypto-lending sector was poorly managed, subjecting users to heavy losses after epic boom

    The late-night bankruptcy filing of Genesis Global Capital LLC last week marked the end of an era for crypto lenders that tried to bring the centuries-old business model of banking to the digital-currency space.

    Many of the biggest names in crypto lending have failed in the past half-year, highlighting the shaky foundations, risky practices and lack of regulation in the sector. Now, millions of depositors who parked savings with such lenders are in limbo as they hope to get back some portion of their money in slow-moving bankruptcy proceedings.

    Two big lenders, Celsius Network LLC and Voyager Digital Ltd. VYGVQ 0.83% , filed for chapter 11 bankruptcy protection in July. Another one, BlockFi Inc., followed suit in November. Genesis suspended withdrawals the same month and ultimately tumbled into bankruptcy on Thursday, along with two related units, Genesis Global Holdco LLC and Genesis Asia Pacific Pte. Ltd.

    All these firms made money by taking crypto deposits for a promised rate of interest, lending the funds to others firms for a higher rate of interest, and pocketing the difference.

    Genesis differed from its peers because it didn’t market directly to individual investors, but took funds from firms that did take retail deposits, such as the Gemini crypto exchange. Genesis held more than $900 million on behalf of more than 340,000 users of Gemini’s “Earn” program when it halted withdrawals, according to Gemini co-founder Cameron Winklevoss.

    The lenders that haven’t shut down are under regulatory pressure.

    Fundamentally, crypto lenders have the same business model as banks. But traditional banks are subject to a web of regulations including capital requirements, bank examiners who review the quality of loans, and a backstop from the Federal Deposit Insurance Corp. to ensure that small depositors are kept whole in the case of a bank failure. Crypto lenders don’t have such protections.

    The rash of failures showed how interconnected the crypto lenders were, allowing market shocks to ripple through one lender to the next. Voyager was largely brought down by the failure of crypto hedge fund Three Arrows Capital, which also owed tens of millions of dollars to Celsius. When those two lenders encountered trouble last summer, BlockFi turned for help to Sam Bankman-Fried’s FTX. After FTX filed for bankruptcy in November, BlockFi was effectively doomed.

    Meanwhile, FTX’s affiliate, hedge fund Alameda Research, had borrowed hundreds of millions of dollars from Genesis, The Wall Street Journal has reported. Alameda is now in bankruptcy. A Genesis affiliate was also the largest unsecured creditor of FTX’s main crypto exchange, with a $226 million claim, according to a Thursday court filing.

    “They’re all interconnected,” said Frances Coppola, a U.K.-based financial blogger and crypto skeptic. “When one goes down, the others follow too, eventually. It’s all dominoes.”

    Those risks were not much discussed during the go-go days of crypto lending, as startups touted themselves as safe destinations for deposits. The firms enticed customers with yields far higher than those available in dollar-based bank savings accounts. Celsius, for instance, offered annual percentage yields of up to 18.6% on crypto deposits.

    During the bull market in crypto—when sophisticated trading firms were eager to borrow deposits to fund high-risk, high-return strategies—it seemed potentially possible to achieve such returns. But last year’s downturn in crypto demolished such profit opportunities and made it impossible to keep offering high-yield products.

    “These firms appeared to be doing really well when it was easy to do well, and it kind of covered up the lack of risk management in place,” said Campbell Harvey, finance professor at Duke University. “Many people learned the hard way that these firms were quite deficient in the way that they were operating.”

    Among those deficiencies: Crypto lenders were highly reliant on a few big players who they hoped would keep paying big returns, such as Alameda and Three Arrows. Some lenders also relied on dubious forms of collateral to secure loans, such as the FTT tokens created by Mr. Bankman-Fried’s companies. FTT’s price has fallen by more than 90% since early November.

    Many crypto proponents say the future of digital-currency lending lies in decentralized finance, or DeFi, where investors can still earn yields by depositing funds in automated borrowing and lending platforms. Such platforms are also similar to banks, in that they connect borrowers and lenders.

    But instead of humans making the decisions about where to direct depositors’ money, they use algorithms and strict rules around the use of collateral. DeFi lending platforms, such as Aave and Compound, have generally held up amid the turmoil at so-called “centralized” lenders, such as Genesis. And many crypto fans consider DeFi platforms to be closer to the original, freewheeling philosophical ethos of bitcoin.

    “Once we pass through this storm, DeFi lenders are the best positioned to gain market share, due to an increased premium on trust and transparency,”

  16. Tomi Engdahl says:

    Wall Street Journal:
    Sources: crypto companies Circle Internet Financial, Bullish Global, Galaxy Digital, and eToro had plans to go public derailed by SEC scrutiny in the past year

    SEC Scrutiny Blocks Some Crypto Firms From Going Public
    Companies including Circle Internet Financial and eToro have failed to secure the regulator’s approval

    ncreased scrutiny from the Securities and Exchange Commission has derailed crypto companies’ efforts to go public this past year, as financial distress and failures spread across the volatile industry.

    Crypto-focused companies including Bullish Global, Circle Internet Financial and eToro Group Ltd. have failed to secure the SEC approvals that are required of companies going public. The firms were seeking stock-exchange listings through mergers with special-purpose acquisition companies, an alternative path to going public that thrived in 2020 and 2021 before heightened regulatory checks and market turbulence ended the SPAC boom.

    he SEC didn’t set out to stop the companies from going public, according to a person familiar with the matter, but crypto firms believe the pace of the agency’s review hurt their efforts, particularly after the crash of a well-known cryptocurrency and the failure of a large crypto hedge fund that hit many exchanges and lenders. The bankruptcy of crypto exchange FTX and a bear market in digital asset prices may keep the door closed.

    Most crypto firms say their digital assets aren’t securities, and therefore they don’t need to comply with investor-protection rules. SEC Chair Gary Gensler disagrees and contends that much of the industry is noncompliant.

    “Anyone bringing a crypto deal to the SEC should realize there is going to be a lot of friction,” said Scott Kimpel, a partner at law firm Hunton Andrews Kurth LLP.

    The agency still holds clout when companies want to access the public markets.

    Potential issuers want the process to end with regulators deeming the company’s disclosures “effective,” making its shares good to be sold to the public. Bullish, Circle and eToro haven’t gotten there. The SEC reviewed their going-public filings for nearly a year or more, according to regulatory records, and didn’t declare them effective.

    When Coinbase Global Inc. went public in 2021, the SEC sent three letters to the company with questions. Bullish, by contrast, responded to more than 10 letters over more than a year, according to people familiar with the letters.

    Galaxy, which first filed paperwork to go public in the U.S. with the SEC in October 2021, received one letter from the SEC with more than 90 questions, according to a person familiar with the matter. Galaxy, whose shares on the Toronto Stock Exchange are down about 80% from their peak over the past year, expects it will be able to eventually clear the SEC’s hurdles, a person familiar with the company said.

    Galaxy Digital Chief Executive Mike Novogratz said on an August 2022 conference call that it has “been frustrating that it’s taken as long as it has.” A Galaxy spokesman declined to comment further.

    Many of the crypto firms that went public after Coinbase had another challenge: their partnership with a SPAC imposed a strict deadline to close the deal.

    A SPAC is a shell company that raises money from the public and plans to use the funds to combine with a private company. A SPAC typically has as long as two years to find its merger partner and complete the deal. If the deal can’t clear the SEC’s review process in time, or other problems cause it to stall, the SPAC must return the money.

    Then crypto exchange FTX filed for bankruptcy on Nov. 11. Circle said it didn’t have major ties to FTX. Afterward the SEC proceeded more cautiously with Circle’s review, the people said.

    The SEC issued a list of 16 questions after FTX’s implosion that it wanted crypto companies to address in public filings, some of which were relevant to the firms under review, according to a person familiar with the review.

    Circle and Concord called off their deal in early December. “I think that it’s been a thorough process,” Circle Chief Executive Jeremy Allaire said at the time about dealing with the SEC. “Unfortunately it was a longer process than we had hoped.” A Circle spokesman declined to comment further.

    EToro also gives users access to stocks, but the SEC’s questions for eToro focused on its crypto business, a person familiar with the questions said. Crypto trading at the company accounted for 63% of commissions and interest income in the first half of 2021, according to filings.

  17. Tomi Engdahl says:

    Jesse Hamilton / CoinDesk:
    The FBI says North Korea-backed hacking groups Lazarus and APT38 are behind the June 2022 theft of ~$100M in ETH, USDT, and wBTC from Harmony’s Horizon bridge

    FBI: North Korean Hackers Behind $100M Horizon Bridge Theft
    Lazarus Group and APT38, both associated with North Korea, are responsible for the attack in June, the agency concluded.

  18. Tomi Engdahl says:

    Ryan Browne / CNBC:
    London-based crypto exchange Luno, owned by DCG, lays off 35% of its global workforce, citing market “turbulence”; Luno has a ~960 headcount per its LinkedIn — – London-based crypto exchange Luno informed employees of the redundancies at 12 p.m. GMT on Wednesday in a live-streamed town hall.

    DCG-owned crypto exchange Luno axes 35% of staff, citing market turbulence

    London-based crypto exchange Luno informed employees of the redundancies at 12 p.m. GMT on Wednesday in a live-streamed town hall.
    Luno has a total headcount of roughly 960, according to its LinkedIn profile, meaning that more than 330 jobs will be impacted.
    The company, which has offices in Africa, southeast Asia and Europe, is part of the Digital Currency Group crypto conglomerate.

  19. Tomi Engdahl says:

    Report: South Korean prosecutors are seeking the arrest of Bithumb owner Kang Jong-Hyun, as part of a wider probe into the crypto exchange and its affiliates — Kang Jong-Hyun and his sister are under investigation for embezzlement related to tax evasion allegations against Bithumb.

    Crypto Exchange Bithumb Owner’s Arrest Requested by South Korean Prosecutors: Report

    Kang Jong-Hyun and his sister are under investigation for embezzlement related to tax evasion allegations against Bithumb.

  20. Tomi Engdahl says:

    Yogita Khatri / The Block:
    Gemini-owned NFT platform Nifty Gateway’s co-founders Duncan and Griffin Cock Foster leave the company, as Tyler and Cameron Winklevoss battle to save Gemini

    Nifty Gateway co-founders stepping down, departing Gemini amid troubles

    Quick Take

    Nifty Gateway co-founders Duncan and Griffin Cock Foster are leaving Gemini.
    Their departure comes amid challenging times at Gemini, which acquired Nifty Gateway in 2019.

    Duncan and Griffin Cock Foster, twin brothers and co-founders of Gemini-owned NFT platform Nifty Gateway, are stepping down from their positions and leaving Gemini amid troubles at the company.

    “Some news — after almost 4 years, Griffin and I are departing Gemini and are passing the baton at Nifty Gateway,” Duncan writes in a yet unpublished tweet thread obtained by The Block. “This journey has been an incredible ride, but Griffin and I are founders at heart and we want to start another company.”

    Gemini acquired Nifty Gateway in 2019 in its first-ever deal when NFTs were still a relatively new concept. The deal couldn’t be more coincidental — the Cock Foster brothers are identical twins like Gemini co-founders Tyler and Cameron Winklevoss.

    Their departure comes amid challenging times at Gemini. The crypto exchange operator halted client withdrawals for its Earn product in November as its lending partner, Genesis Global Capital, paused withdrawals due to severe liquidity issues. Last week, Genesis filed for bankruptcy protection, with Gemini being its biggest creditor. It owes more than $765 million to some 340,000 Gemini Earn customers.

  21. Tomi Engdahl says:

    Michael Bodley / Blockworks:
    Sources: Amazon plans to launch an NFT initiative in April 2023, and has looked at layer-1 blockchains, blockchain-based gaming, and digital asset exchanges — Amazon is launching a digital assets enterprise, according to four sources familiar with the matter, who said that an NFT initiative is expected in the spring.

    Amazon NFT Initiative Coming Soon: Exclusive
    World’s largest retailer has been hovering at the edges of Web3 tech for some time

    Amazon is launching a digital assets enterprise, according to four sources familiar with the matter, who said that an NFT initiative is expected in the spring.

    Amazon has been shopping the digital collectibles effort to no shortage of power players in the industry, per multiple sources. Said to be among those entities are layer-1 blockchains, blockchain-based gaming startups and developers and digital asset exchanges. There’s a focus on blockchain-based gaming and related NFT applications, two sources said.

    One example in the works, per one source: getting Amazon customers to play crypto games and claim free NFTs in the process.

    The effort is still developing, sources said. April appears to have been penciled in for the e-commerce giant to make its bold crypto ambitions public.

    Amazon “coming into the space” is “a big one” for crypto “for many different reasons, one source said.

  22. Tomi Engdahl says:

    The Block:
    A 116-page bankruptcy document lists FTX’s creditors, including AWS, Apple, Meta, LinkedIn, Netflix, Binance, the WSJ, and the Prime Minister of the Bahamas

    FTX creditor list includes star athletes, crypto firms, state governments

  23. Tomi Engdahl says:



    Ape Copyright Gone
    Yuga Labs, the firm behind the infamous Bored Ape Yacht Club non-fungible tokens (NFTs), apparently never actually copyrighted its computer-generated primates.

    This hilarious admission, which came from a legal document submission from Yuga Labs itself, stems from a lawsuit involving art world nepo baby and onetime Azealia Banks fiancé Ryder Ripps, who Yuga is suing for using its expensive ape imagery in his own NFT collection without the firm’s permission.

    “Yuga Labs does not have a registered copyright,” the filing reads, “and there is therefore no imminent threat of a lawsuit for copyright infringement.”

    That admission seems to go against one of the key value propositions of the crazy-expensive Bored Ape NFTs — that purchasing one gives the owner near-universal rights to use or profit from in whatever way they see fit, as Seth Green’s notorious Ape heist revealed to us last summer.

    Ripps also iterated on the collection’s website that the project is meant as a statement about copyright and ownership in the NFT space. One can only imagine his glee, then, when the very company he’s targeted admitted that it never filed any federal copyright claims.

    In its filing, Yuga Labs added that it believes a “lack of federal copyright registration does not mean an entity does not own copyright,” and that “when provenance is documented… copyright protection is automatic.”

    Who Owns The Apes?
    In spite of this seemingly significant oversight, the company says that there is “no confusion” about its NFT holders retaining their Ape rights, and slapped Ripps with a motion to dismiss when he tried to issue a counterclaim upon the copyright revelation.

    Importantly, it is worth noting that Yuga is not suing Ripps for violating copyright law at all, but rather for trademark infringement — and it does appear that the company has filed trademark claims.

    But the apparent oversight regarding copyright is nevertheless pretty jarring, especially given what Yuga Labs promised to BAYC buyers. Remember: all this NFT ownership stuff still remains largely untested in court.

  24. Tomi Engdahl says:

    Wall Street giant Goldman Sachs has reported that bitcoin has been the best-performing asset in the world during the first month of 2023—outperforming gold, the S&P 500 and the Nasdaq 100.

    Goldman Sachs Finds Bitcoin Tops Gold, S&P 500, And Nasdaq As The Best-Performing Asset Of 2023

    BitcoinBTC +0.1% has rocketed into the new year, adding almost 40% so far in 2023 despite fresh fears of a “disastrous global financial meltdown.”

    Now, Wall Street giant Goldman Sachs has reported that bitcoin has been the best-performing asset in the world during the first month of 2023—outperforming gold, the S&P 500 and the Nasdaq 100.

  25. Tomi Engdahl says:

    Sander Lutz / Decrypt:
    The White House publishes a roadmap for mitigating risks posed by cryptocurrencies and urges Congress to hasten efforts to create a crypto regulatory framework — Four senior Biden officials penned a note Friday urging lawmakers to hasten their efforts to create a regulatory framework for crypto.

    White House Blames Congress for Failure to Enact Crypto Regulations

    Four senior Biden officials penned a note Friday urging lawmakers to hasten their efforts to create a regulatory framework for crypto.

  26. Tomi Engdahl says:

    Sander Lutz / Decrypt:
    The Biden administration publishes a roadmap for mitigating cryptocurrencies’ risks and urges Congress to hasten efforts to create a crypto regulatory framework — Four senior Biden officials penned a note Friday urging lawmakers to hasten their efforts to create a regulatory framework for crypto.

    White House Blames Congress for Failure to Enact Crypto Regulations

    Four senior Biden officials penned a note Friday urging lawmakers to hasten their efforts to create a regulatory framework for crypto.

    The White House pointed the finger at Congress Friday for stalling on a comprehensive, national crypto regulatory framework, outlining numerous actions lawmakers could take to reign-in fraud and bad actors in the crypto sector.

    Congress “needs to step up its efforts,” four of President Biden’s senior advisors wrote in a White House blog post on crypto policy published Friday morning.

    The post goes on to highlight a number of moves Congress could make immediately to purportedly enhance consumer protection standards in the crypto space.

    The post goes on to highlight a number of moves Congress could make immediately to purportedly enhance consumer protection standards in the crypto space.
    Want to be a crypto expert? Get the best of Decrypt straight to your inbox.
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    Those moves include expanding the powers of federal regulatory agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC); strengthening transparency and disclosure requirements for crypto companies; aiding law enforcement by increasing funding, strengthening penalties for existing finance rules, and enhancing those rules to penalize intermediaries; and passing legislation to regulate stablecoins, as outlined in a recent Treasury Department report.

    Stablecoins are cryptocurrencies whose values are tied to sturdy assets like gold and the U.S. dollar; this relationship is meant to keep the values of stablecoins relatively constant, even in periods of crypto market volatility. That theory has been repeatedly tested, however, most notably last May when so-called algorithmic stablecoin UST de-pegged from the U.S. dollar and subsequently collapsed, leading to a chain of events that wiped out some $40 billion in value. UST was not actually backed by a reserve of dollars, but instead an algorithm designed to keep its value consistent. That algorithm failed, and it’s at least partly responsible for kicking off the current crypto winter.

    Multiple cryptocurrency bills are currently floating around Washington, though none have yet been voted on. The Stablecoin TRUST Act, which would establish a federal regulatory framework for “payment stablecoins,” was introduced in the Senate in December. The Lummis-Gillibrand Responsible Financial Innovation Act—which would give crypto regulatory power to the CFTC—has been kicking around the Senate since last June.

  27. Tomi Engdahl says:

    White House Refuses to Answer Questions About Sam Bankman-Fried Donations
    White House Press Secretary Karine Jean-Pierre claimed she was bound from commenting on the matter by a Depression-era law.

  28. Tomi Engdahl says:

    Financial Times:
    The English Premier League strikes a four-year deal with blockchain fantasy sports startup Sorare; sources say Sorare will pay tens of millions per year — League agrees multimillion-pound licensing deal with start-up that offers trading in digital player cards


  29. Tomi Engdahl says:

    Dominic-Madori Davis / TechCrunch:
    Crunchbase: US Black Web3 founders raised $60M in 2022, up from $16M in 2021; US Web3 startups raised $11.9B in 2022, down 39% from $16.5B in 2021

    VC funding to Black web3 founders popped last year, bucking trends
    Startups in the space are more bullish than ever

    Much hope remains after the crypto winter almost froze the sector: the Luna crash, the bankruptcy of Celsius and the arrest of FTX founder Sam Bankman-Fried for alleged fraud. Then there was the venture pullback amid an economic downturn.

    In 2021, web3 startups globally raised a record $29.2 billion. By 2022, that number dipped to $21.5 billion — though that’s still much more than the total $4.8 billion and $4.2 billion such companies picked up in 2020 and 2019, respectively.

    Black people who invested in crypto were hit disproportionately hard during the winter, though many Black founders and investors who spoke to TechCrunch remain optimistic about the sector’s potential for the community and society overall. If anything, last year’s economic correction was necessary, they told TechCrunch.

  30. Tomi Engdahl says:

    Jack Schickler / CoinDesk:
    Independent examiner: Celsius misled investors and sometimes used new customer funds to pay for withdrawals, CEO Alex Mashinsky made false claims, and more

    Celsius Used New Customer Funds to Pay for Withdrawals: Independent Examiner

    Shoba Pillay was appointed by a New York bankruptcy court to look at whether the crypto lender operated as a Ponzi scheme

    Celsius misled its investors – and on occasion used new customer funds to pay for other customers’ withdrawals, the usual definition of a Ponzi scheme, an independent examiner for the New York bankruptcy court said in a Tuesday filing.

    In September, Shoba Pillay was asked by the court to offer an outside view of goings-on at the crypto lender, has now published an account of the firm’s operations in the run up to bankruptcy being declared in July.

    “In every key respect—from how Celsius described its contract with its customers to the risks it took with their crypto assets—how Celsius ran its business differed significantly from what Celsius told its customers,” Pillay wrote, after interviewing staffers, including former chief Executive Officer Alex Mashinsky, as well as customers of and vendors to the company.

    Promises of a community-led lending system offering lavish returns and financial freedom clashed with a reality where the company itself was largely creating the market in native token CEL, and wasn’t open with customers about the risks they faced, Pillay said.

    In April 2022, Celsius’s Coin Deployment Specialist Dean Tappen described Celsius’s practices as “very ponzi like,” Pillay said, adding that staff were aware of the discrepancy between internal CEL mechanics and public pronouncements.

  31. Tomi Engdahl says:

    Erin Mulvaney / Wall Street Journal:
    A look at MetaBirkins, 100 NFTs created by a self-described entrepreneur and artist in 2021, as Hermès goes to court in NYC seeking to stop the use of its brand

    Virtual Birkin Bags on Trial in Hermès Case Testing IP Rights

    Lawsuit is an early test of how a company can exercise its rights against virtual assets it didn’t authorize

    The Birkin handbag, made by French luxury brand Hermès, for decades has been a symbol of wealth, sold through exclusive shops and mysterious wait-lists at prices that reach tens of thousands of dollars or more.

    A self-described entrepreneur and artist in 2021 set out to offer another way to own a Birkin, with a digital nonfungible token. Mason Rothschild created a series of 100 digital images he called MetaBirkins, depicting fur-covered purses in the same shape and style as the Hermès RMS -0.03% luxury product, which he sold as digital tokens on virtual marketplaces. The NFTs sometimes have sold at prices similar to the real handbags.

    Beginning Monday, Mr. Rothschild’s MetaBirkins go on trial in New York in a case at the intersection of trademark law and constitutional protections for freedom of expression. Hermès is seeking to stop Mr. Rothschild from using its brand, the destruction of the NFTs and his profits plus other financial damages. Mr. Rothschild says his MetaBirkins are artwork protected by the First Amendment.

    Neither Hermès nor its lawyers responded to requests for comment. Mr. Rothschild declined to comment.

    Legal analysts say the trial represents an important early test of how a company can exercise its rights against virtual assets it didn’t authorize.

    The specter of the unregulated metaverse is top of mind for companies that worry their brands will be used—and abused—as virtual reality expands, said Thomas Brooke, an intellectual property lawyer with Holland & Knight LLP.

    The case “will give us more guideposts for what to do with NFTs,” Mr. Brooke said. “With any new technology the courts are often having to apply existing law and figure out what works.”

    NFTs, blockchain-based unique assets that can be collected and traded, exploded in recent years as investors have flocked to marketplaces where tokens are sold. Lawsuits have followed, with retail brands and other companies claiming trademark and copyright infringement.

    Among other pending cases, Nike Inc. is suing online marketplace StockX over virtual sneakers depicting the brand’s well-known swoosh that it sold as NFTs in combination with the resale of Nike sneakers. StockX denied the claims and said the introduction of the tokens expedites the process of authenticating and processing the physical items it sells

    Nike Accuses StockX of Trademark Infringement in Sales of NFTs

    The online resale marketplace offers customers the chance to buy digital tokens associated with limited-edition sneakers

  32. Tomi Engdahl says:

    Andre Romani / Reuters:
    Mastercard and Binance expand the prepaid Binance Card beta from Argentina to Brazil, seeking to “broaden the connection between traditional finance and crypto”

    Mastercard, Binance launching prepaid card in Brazil

  33. Tomi Engdahl says:

    Ryan Browne / CNBC:
    The UK lays out plans to regulate crypto, including measures to strengthen rules for lending, disclosures, financial intermediaries, and crypto custodians

    Britain sets out plans to regulate crypto industry in wake of FTX collapse

    The U.K. laid out plan to regulate the cryptocurrency industry.
    The proposals include strengthening rules on crypto lending, a controversial practice that contributed to the demise of FTX.
    Prime Minister Rishi Sunak is viewed by industry backers as a crypto-friendly leader.

    The U.K. formally laid out plans to regulate the cryptocurrency industry, with the government looking to rein in some of the reckless business practices that emerged over the past year and contributed to the demise of FTX.

    In a widely-anticipated industry consultation launched Tuesday, the government proposed a number of measures aimed at bringing regulation of crypto asset businesses in line with that of traditional financial firms.

    Among the proposals unveiled Tuesday was a move that would strengthen rules targeting financial intermediaries and custodians that store crypto on behalf of clients.

    A big theme that emerged in 2022 was the rise of risky loans made between multiple crypto firms and a lack of due diligence done on the counterparties involved in those transactions.

  34. Tomi Engdahl says:

    Analysis: 2022 was the biggest year ever for crypto hacking, with $3.8B stolen, primarily from DeFi protocols and by the North Korea-linked Lazarus Group

    2022 Biggest Year Ever For Crypto Hacking with $3.8 Billion Stolen, Primarily from DeFi Protocols and by North Korea-linked Attackers

    Hacking activity ebbed and flowed throughout the year, with huge spikes in March and October, the latter of which became the biggest single month ever for cryptocurrency hacking, as $775.7 million was stolen in 32 separate attacks.

    DeFi protocols by far the biggest victims of cryptocurrency hacks

    In last year’s Crypto Crime Report, we wrote about how decentralized finance (DeFi) protocols in 2021 became the primary target of crypto hackers. That trend intensified in 2022.

    DeFi protocols as victims accounted for 82.1% of all cryptocurrency stolen by hackers — a total of $3.1 billion — up from 73.3% in 2021. And of that $3.1 billion, 64% came from cross-chain bridge protocols specifically. Cross-chain bridges are protocols that let users port their cryptocurrency from one blockchain to another, usually by locking the user’s assets into a smart contract on the original chain, and then minting equivalent assets on the second chain. Bridges are an attractive target for hackers because the smart contracts in effect become huge, centralized repositories of funds backing the assets that have been bridged to the new chain — a more desirable honeypot could scarcely be imagined. If a bridge gets big enough, any error in its underlying smart contract code or other potential weak spot is almost sure to eventually be found and exploited by bad actors.

    How do we make DeFi safer?

    DeFi is one of the fastest-growing, most compelling areas of the cryptocurrency ecosystem, largely due to its transparency. All transactions happen on-chain, and the smart contract code governing DeFi protocols is publicly viewable by default, so users can know exactly what will happen to their funds when they use them. That’s especially attractive now in 2023, as many of the crypto market blowups of the past year were due to a lack of transparency into the actions and risk profiles of centralized cryptocurrency businesses. But that same transparency is also what makes DeFi so vulnerable — hackers can scan DeFi code for vulnerabilities and strike at the perfect time to maximize their theft.

    DeFi code auditing conducted by third-party providers is one possible remedy to this. Blockchain cybersecurity firm Halborn is one such provider, and is notable for its clean track record — no DeFi protocol to pass a Halborn audit has subsequently been hacked.

    Schwed told us that DeFi developers should look to traditional financial institutions for examples of how to make their platforms more secure. “You don’t need to move as slow as a bank, but you can borrow from what banks do.” Some measures he recommends include:

    Test protocols with simulated attacks. DeFi developers can simulate different hacking scenarios on testnets in order to test how their protocol stands up to the most common attack vectors.

    Take advantage of crypto’s transparency. One huge advantage of a blockchain like Ethereum is that transactions are visible in the mempool before they’re confirmed on the blockchain. Schwed recommended that DeFi developers monitor the mempool closely for suspicious activity on their smart contracts to detect possible attacks as early as possible.
    Circuit breakers. DeFi protocols should build out automated processes to pause their protocols and halt transactions if suspicious activity is detected. “It’s better to briefly inconvenience users than to have the entire protocol get drained,” said Schwed.

  35. Tomi Engdahl says:

    Tom Schoenberg / Bloomberg:
    Sources: US prosecutors in the DOJ’s fraud unit are investigating California-based bank Silvergate over hosting accounts tied to FTX and Alameda Research — US prosecutors in the Justice Department’s fraud unit are looking into Silvergate Capital Corp.’s dealings with fallen crypto giants FTX …

    Silvergate Faces US Fraud Probe Over FTX and Alameda Dealings

    Bank hasn’t been accused of wrongdoing; probe in early phases
    Silvergate shares tumble more than 20% in extended trading

    US prosecutors in the Justice Department’s fraud unit are looking into Silvergate Capital Corp.’s dealings with fallen crypto giants FTX and Alameda Research, according to people familiar with the matter.

    The criminal investigation is examining Silvergate’s hosting of accounts tied to Sam Bankman-Fried’s businesses, said the people who asked not to be identified to discuss the confidential probe. The review adds to mounting scrutiny of the La Jolla, California-based bank, which has also drawn the attention of lawmakers.

  36. Tomi Engdahl says:

    Greg Ritchie / Bloomberg:
    JPMorgan: 53% of institutional traders predict AI will be the most influential technology for trading in the next three years; 72% have no plans to trade crypto

    Traders See AI Tech Shaping Their Future, JPMorgan Finds

    Over half of survey respondents see machines most influential
    Elsewhere, JPMorgan finds cooled interest in cryptocurrencies

    Traders are betting artificial intelligence and machine learning will have the biggest impact on financial markets in the coming years.

    More than half of respondents to a JPMorgan Chase & Co. survey of 835 institutional and professional traders said those technologies would have the most influence on trading in the next three years. That’s up from a quarter in 2022.

    “This trend toward automation is something we’re seeing across the market now, and is expanding into the credit and rates side as well as commodities,” said Scott Wacker, head of FICC e-commerce sales at JPMorgan.

    Quantitative hedge funds are “bringing systematic models optimized with machine learning to over-the-counter markets,” he said. “We’re also seeing asset managers using data in a more dynamic way using AI-enhanced technologies to assess and improve how they’re executing trades.”


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