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Cyril Mathew previously led business development teams at Stripe and Coinbase.

Some analysts say Binance’s recent decision to include other stablecoins in its zero-fee trading program could have contributed to lesser dependence on BUSD.

The latest price moves in bitcoin (BTC) and crypto markets in context for March 28, 2023. First Mover is CoinDesk’s daily newsletter that contextualizes the latest actions in the crypto markets.

A U.S. judge denied a motion to bZx DAO token holders as defendants in a class action lawsuit filed by some victims of the protocol’s $55 million hack from November 2021.

The Court’s ruling classified bZx DAO as a general partnership. It stated that the plaintiffs provided sufficient facts to qualify defendants who hold the DAO’s governance tokens as members of the general partnership. As such, they are plausibly liable for the group’s obligations, according to California partnership law.

bZx is a DeFi margin trading protocol. The platform’s creators transitioned the protocol to a DAO controlled by bZx DAO in August 2021. Another community called Ooki DAO soon succeeded bZx DAO, taking ownership of the protocol. Members of Ooki DAO moved their assets to this new community. Ooki DAO is currently the subject of a lawsuit by the U.S. Commodity Futures Trading Commission.

The court cited comments issued by the project team when transitioning to a DAO structure as grounds for its ruling. At the time, the bZx protocol founders stated that the move to a DAO would insulate the project from regulatory issues. The Court also cited a conclusion by the U.S. Commodity Futures Trading Commission that bZx transitioned to a DAO to insulate the project from regulatory oversight and liability based on U.S. laws.

DAO token holders owe a duty of care

Monday’s ruling saw the court agree with the plaintiff’s position that DAO token holders owed “a duty of care” to protocol investors. The ruling agreed that they failed to ensure adequate security that would have prevented the hack in 2021. This is despite numerous claims on the protocol’s website about the security of the project.

bZx lost $55 million in a phishing attack in 2021. The hack occurred when a team member fell victim to a phishing exploit. This allowed the hacker access to the private keys of the project’s wallet, which allowed them to steal the funds. This attack was not the first hack suffered by bZx, as the platform had been targeted the year before. The protocol lost about $9 million in several other attacks.

The plaintiffs say they lost $1.7 million in the November 2021 attack. These losses range from $800 to $450,000 among 19 users, including Christian Sarcuni, the lead complainant.

The court dismissed claims against those who did not hold governance tokens as part of its ruling on Monday. The plaintiffs have until April 10 to file a second amended complaint.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto rules form part of a money-laundering overhaul supported by the European Parliament Committees

Members of the European Parliament’s economic affairs and home affairs committees have voted in favor of the anti-money laundering regulation, with 99 for, eight against and five abstentions. 

After weeks of back-and-forth negotiations between policymakers and stakeholders, the committees’ members agreed on their version of the text, which will move forward to a plenary vote in the Parliament. Then, it will enter inter-institutional negotiations where the Parliament, European Council and European Commission must come to an agreement.

For crypto, there are multiple implications. For one, decentralized autonomous organizations, NFT platforms and DeFi platforms will be subject to the AML rules. They will be obliged to comply as long as they are “controlled directly or indirectly, including through smart contracts or voting protocols, by identifiable natural and legal persons,” according to a draft obtained by The Block. 

Unlike the EU’s soon-to-be-enforced Markets in Crypto-Assets regulation, the anti-money laundering bill does include decentralized platforms as obliged entities. The aim of the AML file is to close the regulatory gap.  

“These categories will be obliged to conduct due diligence checks on all their customers and report suspicious transactions to the authorities, in the same way banks, financial institutions or real estate agents, for example, currently do,” a spokesperson from the office of Green party MEP Damien Careme wrote to The Block in an email. Careme is one of the two policymakers leading the European Parliament’s negotiations on the AML package.

Commercial payment caps

Should the regulation pass, credit and financial institutions must apply due diligence measures when enabling crypto transactions worth more than €1,000 ($1,080). Plus, there are enhanced due diligence measures for correspondent relationships with crypto service providers from outside the EU and payments involving self-hosted wallets. Business relations with unlicensed entities would be prohibited.

For commercial crypto payments, there would be a restriction on transactions of more than €1,000 in value stemming from self-hosted wallets unless the wallet’s owner is identified. In an earlier version of the text, policymakers set the limit for merchants accepting payments from service providers not licensed under MiCA. The industry pushed back on this, claiming this would hinder innovation and stray from the regulatory path already laid out for the EU.

“Far from prohibiting all crypto transactions above a €1,000 threshold, this provision insures that for self-hosted wallets, where identification of the owner is, by definition, very complicated, a limit is implemented,” Careme’s office wrote in the email.

There is a mandate for the European Commission to assess whether to adjust the rule on commercial payments in three years, to align with regulations, including the European Union’s digital identity framework and the newly proposed Anti-Money Laundering Authority’s requirements. 

Anonymous crypto accounts, as well as bank accounts, would be prohibited under the regulation. Other anonymizing tools, including privacy wallets, mixers and tumblers, are dubbed as higher risk. The Commission will also assess if they should be prohibited in the future.

A new anti-money laundering supervisor

On top of the Anti-Money Laundering Regulation, the EU has also proposed the establishment of a new Anti-Money Laundering Authority, which will oversee and enforce AML regulations across the 27-nation bloc, relieving some of the burdens from national authorities. The proposal passed with 102 votes in favor, 11 against and two abstentions in the joint committee vote.

While having an EU-wide AML authority would make it easier for crypto firms to navigate an otherwise fragmented set of national policies, there are still some concerns. The AMLA would need to be well-resourced to effectively oversee the crypto sector, several sources told The Block.

Isabella Chase, senior policy advisor at blockchain intelligence and risk management firm TRM Labs is optimistic about the impact of the new supervisory body. For crypto companies, “the AMLA could be a big opportunity to be in the room with supervisors sharing their experience of being supervised and hopefully establishing useful best practices that can then trickle down through the member states,” she said.

Updated to reflect the Anti-Money Laundering Authority proposal passed.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Canadian-listed crypto investment firm Galaxy Digital missed analyst expectations with the release of its fourth-quarter results.

The company, which trades in Toronto under the ticker GLXY, reported a net loss of $1 billion for 2022 compared with $1.7 billion in profit achieved in the prior year. It also reported a $288 million loss for the fourth quarter. The company attributed the loss to unrealized marks to market on its investments portfolio.

The firm’s 2022 financial results are reflective of the turbulent year faced by the crypto industry, which witnessed the collapse of leading industry players and a decline in crypto asset prices alongside a challenging macro environment with rising interest rates and surging inflation. The firm revealed last quarter that it had $76.8 million exposure to failed crypto exchange FTX and experienced a net loss in its mining business, which is typically profitable, due to increased expenses.

“2022 was a formative year for Galaxy, and while we and our industry faced unprecedented macroeconomic events, we succeeded in staying the course and were able to opportunistically take advantage of strategic opportunities to build our operating businesses for the future. I have never been more confident in our go-forward strategy, businesses and team,” Mike Novogratz, founder and CEO of Galaxy, said in the release.

Analysts estimated that Galaxy would report an average net revenue of 674 million Canadian dollars ($492 million) for the financial year and CA$43 million ($31 million) for the quarter, according to data from Yahoo Finance. The firm achieved $419.4 million in revenue. The company’s stock price is down around 85% over the past year.

Counterparty trading volumes increased by about 19% in the fourth quarter over the prior period, but decreased 65% year over year.

The company said it expects to record net profits for the first quarter of this year in its operating business.

Galaxy’s business lines

Galaxy Digital’s operations span a number of different business lines from venture investing to bitcoin mining, trading and advisory services. Its trading arm reported an operational net revenue of $18 million for the fourth quarter and is focusing on the strategic build out of GalaxyOne, a prime-brokerage platform for digital assets, which will be released in beta form in the second quarter of this year.

“Counterparty trading volumes increased by approximately 19% over the prior quarter while decreasing by just over 65% year over year,” the company said.

“GT [Galaxy Trading] ended the year with more than 930 total counterparties after onboarding over 20 new counterparties to our trading platform during the fourth quarter,” the company added. “We continue to provide liquidity in over 100 cryptocurrencies.”

Meanwhile its investment banking arm saw an a steady pace in its deal pipeline. In the fourth quarter it advised on Amberdata’s purchase of Genesis Volatility and advised CoreWeave on its strategic investment from Magnetar Capital.

The company previously announced its intentions to reorganize to become a Delaware-incorporated company and list on the Nasdaq this year. The firm reported that it has filed an amendment to its registration statement responding to Securities and Exchange Commission comments, which is under review.

This comes as regulators in the U.S. ramp up their scrutiny of crypto companies operating in the U.S. Crypto exchange Coinbase recently received a Wells notice from the SEC over its earn program, while Binance and its CEO,  Changpeng “CZ” Zhao, are being sued by the Commodity Futures Trading Commission (CFTC) for allegedly violating federal laws and not registering the exchange in the U.S.   

Galaxy has also acquired mining business Helios and self-custody business GK8 in recent months.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Low liquidity means wave of buy or sell orders can have an outsized impact on bitcoin’s market price.

Binance said it’s not trading aggressively against its clients after a complaint by the U.S. Commodities Futures Trading Commission alleged the exchange violated compliance rules.

A Monday complaint against the largest crypto exchange and its CEO, Changpeng Zhao, sent ripples through the crypto market — with the CFTC accusing Binance of violating laws “designed to prevent and detect money laundering and terrorism financing.”

“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance,” commented CFTC Chairman Rostin Behnam. 

The exchange — known for its itinerant nature, historically jumping from jurisdiction to jurisdiction — holds regulatory licenses in France, Italy and Abu Dhabi, among others. 

As for the complaint, it alleges that Zhao is connected to more than 300 separate Binance accounts that “have engaged in proprietary activity on the Binance platform.” It adds that Binance has not disclosed in its terms of service that it is trading on its own market. 

‘Hunted user stops’

In response to a whimsical tweet about crypto exchange’s market-making operations, Binance chief strategy officer Patrick Hillmann suggested its internal trading was above board, noting that “unlike other exchanges, Binance does not, nor ever has, hunted user stops or liquidation prices.” He added: “Any trades made are primarily algorithmic for market stability purposes or to reduce slippage.”

Hillmann also said that Binance does not aggressively trade against its users — a “huge difference” with the operations of now-bankrupt Alameda Research.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The association has received sponsorship from crypto investment firm Geometry Research and StarkWare Industries – the software company behind StarkNet, a layer 2 Ethereum zero-knowledge rollup scaling solution.