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Crypto investment firm HashKey Capital has closed its third fund by raising $500 million. The fund comes as the industry is reeling under pressure from recent collapses and the bear market.

Dubbed HashKey Fintech Investment III, the fund targets investments across crypto areas, with a focus on infrastructure and application builders, the firm announced on Monday. HashKey began raising the fund over a year ago. By January 2022, the fund had $360 million in commitments and is now officially closed.

The fund had initially targeted closing at $600 million, but “timing matters more than the size,” Deng Chao, CEO of HashKey Capital and head of HashKey Group Singapore, told The Block in an interview. “We are now at the bottom of the next cycle. That’s why we closed the fund and launched it officially,” said Chao. “We closed our previous two funds too at the bottom of the next cycles in 2018 and 2020.”

HashKey’s first two funds raised a combined $100 million and its current assets under management stand at over $1 billion. HashKey Group, a spinoff of Chinese conglomerate Wanxiang Group, was one of the earliest investors in Ethereum in 2014. Chao said the new fund will continue investing for a longer term with a focus on value.

“We always hold a cyclical view towards the industry,” he said. “So when we evaluate a project, we look at it from a cyclical perspective — whether it would still be around after this cycle or would be able to survive the cycles to come.”

The current market situation is a good time to invest in projects focused on growing the crypto industry and bringing mass adoption, said Chao. Specifically, HashKey is interested in projects that have real use cases and are focused on building tooling for easily onboarding new users from web2 to web3 to 3, said Xiao Xiao, investment director at HashKey Capital, in the interview. Ethereum, Polygon and other Layer 2 networks are some ecosystems HashKey is focused on, Xiao added.

The HashKey Fintech Investment III has thus far deployed around $100 million, Michael Chen, investor relations director at HashKey, said in the interview. The firm looks to fully deploy the fund in the next 2 to 3 years by investing in projects that are in different stages, backing both equity and token deals, he added.

HashKey’s current portfolio includes some high-profile companies and projects, including Aztec, Blockdaemon, dYdX, Animoca Brands, Falcon X, Polkadot and Coinlist.

© 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.

A handful of protocols and exchanges currently dominate the Ethereum staking scene. Diva recently closed a $3.5 million seed round led by A&T Capital to change that, with plans to build out a cooperative decentralizing staking pool.

“Diva is an ultra-light client connecting to existing Ethereum execution and consensus clients via standard APIs,” CEO Pablo Villalba told The Block in an interview.

“Stakers can stake any amount of ETH with no minimum, and don’t need to run any nodes. A standard web3 wallet is enough” said Villalba. Those who wish to operate a node on Diva and earn rewards may do so with as little as 1 ETH, and the protocol works with any system that meets the minimum requirements to run a full Ethereum node.

A collaborative network for passive rewards

In return for staking ETH on Diva, participants receive a one-to-one ratio of divETH, a freely tradable liquid asset. Any divETH rewards received by stakers accrue in wallets on a daily basis. DivETH can be unstaked and redeemed for ETH, again at a one-to-one ratio, at any time following the March 2023 Capella update, according to Diva.

The protocol is built to offer rewards to both passive stakers as well as full-time node operators, where “rewards will be socialized across the entire network to achieve smooth and predictable reward rates,” said Villalba.

Nodes on Diva collaborate together by posting a bond of 1 ETH to form groups. Each group of 16 nodes is matched up against 16 ETH from various stakers on the network, together forming a full validation node.

Lower thresholds to counter centralization

Eduard Antuña, founder of the open source Ethereum validator protocol Dappnode, first proposed the idea of Distributed Validator Technology (DVT) — which was to become the basis for Diva — at the ETHDenver conference, last year.

“He saw how the cost was prohibitive to many, and thought to make a ‘decentralized staking pool’ where nodes would validate for each other cooperatively, instead of in their own silos,” said Villalba.

The high threshold of 32 ETH to set up a validator node on Ethereum is a cost point that excludes many network participants operating nodes of their own. Given that, staking protocols remain largely presided over by organizations such as Lido, where validator keys are in the control of a minority group of whitelisted node operators, and centralized exchanges such as Binance, Kraken and Coinbase that fully control funds and validator keys.

The growth of such platforms erodes the values of decentralization that are core to the Ethereum blockchain, said Diva.

“We truly believe that we won’t see real decentralization until we solve the validator problem. Diva is our proposal to the community effort to solve that,” said Villalba.

Concerned by issues of censorship and the power of single parties over the custody of validator keys, and noting the rise of OFAC compliance-driven censorship on Ethereum, Diva’s team worked with Antuña to build a prototype at ETHLisbon’s hackathon, said Villalba.

Turned down by Lido

When presented with the opportunity to integrate the protocol, major staking provider Lido declined.

“Initially we offered Lido a deep partnership, offering our tech to power the heart of a Lido v2 built purely on DVT,” said Villalba. Lido, he pointed out, “has billions in TVL managed by only 30 trusted parties who could easily collude.”

The collaboration might have had “a significant impact on the ecosystem by dissolving Lido’s permissioned islands,” said Villalba.

But Villalba said that Lido’s team “remained skeptical” of Diva’s model, arguing instead that staking should be professionally managed at Devcon Bogotá. The announcement was to be met with criticism from some members of the community.

Inspired to compete

Spurred on by a passion to decentralize the staking ecosystem and with a solid MVP in hand, “we decided to compete face to face,” said Villalba.

“We had to come up with an economic system for a P2P network of nodes that would coordinate to act in the interest of the whole community,” said Villalba. “For this, we designed a rewards and penalties system in our own subnetwork of Ethereum nodes, where stakers can provide passive yield and node operators are rewarded for their work.”

Diva found backing with a $3.5 million seed round led by A&T Capital, with support from other investors including Gnosis, Bankless, OKX Ventures, Metaweb, DCV Capital, Alphemy Capital, Very Early Ventures and Stake.vc. Additional angel investors behind projects such as Metacartel, Aave, Staking Rewards, zkEVM, ZKValidator, EthGlobal, EigenLayer, Aragon, Stakely and many more also joined in.

Diva is set to go live late January 2023.

Lido did not immediately respond to The Block’s request for comment.

© 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.

TaxBit, a crypto tax and accounting software provider, has acquired rival Tactic to expand its offerings.

The acquisition, TaxBit’s first, will help expand its existing corporate accounting offering, the company announced on Tuesday. Terms of the deal weren’t disclosed, but Tactic has raised over $13 million in total funding to date, its founder and CEO Ann Jaskiw told The Block. As part of the deal, Jaskiw will join TaxBit as a member of its leadership team, she added.

Crypto tax and accounting compliance are in the spotlight more than ever amid recent high-profile crypto collapses, including FTX and Celsius. “Enterprises and governments need robust software solutions,” TaxBit co-founder and CEO Austin Woodward told The Block. “We view 2023 as a time to build, and with the changing macro landscape, more opportunities for strategic acquisitions will come to light over the next 12+ months.”

TaxBit was founded in 2018 and provides a single system of record for crypto tax and accounting. Tactic, on the other hand, was launched in 2021 to help companies stay on top of their accounting practices. The full integration of Tactic’s software and team with TaxBit will take place over the coming months, said Woodward.

There are currently 13 people working for Tactic and all of them will be joining TaxBit as full-time employees, Jaskiw said. TaxBit’s current headcount, on the other hand, is over 250, according to Woodward. He said the deal will help TaxBit expand in New York as Tactic is based in the city.

TaxBit is backed by high-profile investors, including Paradigm and Coinbase Ventures, having raised over $235 million in total funding to date. It was valued at $1.33 billion in August 2021. Woodward said “we are fortunate to be in a strong cash position” and having “experienced exponential growth” since 2021. “We continue to see great demand and opportunity even during a bear market,” he added.

Looking ahead, TaxBit is planning for a global expansion across its enterprise and government verticals, said Woodward.

Law firms Goodwin Procter and Gunderson Dettmer helped with the deal, said Woodward.

© 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.

Web3 infrastructure provider Parfin has raised $15 million in a bid to dominate the Latin America region.

The seed round, which closed at the end of November, is led by Framework Ventures. It also includes backers such as Alexia Ventures, Valor Capital Group and L4 Venture Builder, which is the Brazilian stock exchange’s investment fund, according to a company release. L4’s investment is still subject to approval. 

Founded in 2019, Parfin evolved from a company planning to develop a regulated stablecoin, into an infrastructure provider offering digital asset custody, trading, tokenization and management tools to some of Latin America’s largest financial institutions. 

“As a matter of fact, I initially invested in Parfin as an angel,” said Marcos Viriato, Parfin’s CEO. “There was this guy with a PowerPoint, trying to raise funds and I said, ‘Oh, I like the idea.’ But the idea back there was to do a regulated stablecoin.” 

A LatAm plan

The startup’s strategy has been to focus on the Latin America region because no other competitors were honing in on that area, Viriato said. 

“We said, ‘Let’s try to dominate the region and then use that as a springboard for the rest of the world,’” Viriato said. “And that played really well because we ended up getting big financial institutions, big players, including the Brazilian Stock Exchange, which is one of the largest exchanges in the world, in terms of volumes, so they are using our crypto-as-a-service platform to offer crypto-as-a-service for all the regulated broker dealers in Brazil.” 

Santander also recently put out a proposal to broaden the scope of the digital Real, Brazil’s central bank digital currency (CBDC), with plans to use Parfin’s technology. 

The startup now has around 70 people with more than half coming from the banking industry, Viriato said. The new raise will enable Parfin to build out existing products and launch new services. 

A permissioned public chain

Parfin is currently developing Parchain, a permissioned Ethereum Virtual Machine compatible blockchain that will enable regulated entities to participate in decentralized finance (DeFi) and asset tokenization. 

The startup makes its technology compatible with deploying on the server side, which means financial firms can deploy it within their firewall or security infrastructure, said Brandon Potts, a principal at Framework Ventures. 

“That’s huge because these institutions, they’re not going to want to deal with a mobile phone or have to call up multiple people on a Saturday morning to sign a transaction to move funds,” Potts said. “They want to bring it in and automate it and have it embedded within their entire security spend, their entire risk budget.” 

Several investment banking giants are building their own private blockchains such as JP Morgan’s Onyx blockchain or Goldman Sachs’ privacy enabled blockchain Canton. However not every bank will have that luxury, Viriato said. 

“Our goal is to build and allow mid-sized small banks to take and leverage this infrastructure in a unique way,” Viriato said. “And the beauty of what we built was we created some very sophisticated mechanisms for bridges where you can smoothly interoperate between different blockchains.” 

Parfin’s chain is also unique in that it’s a permissioned Layer 2 that’s attesting to a public chain, Framework’s Potts said. 

Staying lean

The new funds will provide the startup with a runway of between 25 to 30 months, Viriato said. The startup is used to operating in a lean way, after fundraising in early 2020 and then losing most of its committed investments when Covid-19 hit. It wasn’t until September 2020 when Parfin managed to raise a pre-seed round, he added. 

“That actually was one of the points that Framework liked a lot because we’re being very controlled,” Viriato said. 

While the most recent raise was an equity only round, the startup has provided investors with token warrants in the past. It has a view to launch a token for Parchain in the late second quarter or third quarter of this year, he added. 

© 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.

Filecoin Foundation, the governance entity that controls the Filecoin network, is moving forward with its plan to launch a decentralized file system in space this year, the foundation announced on Tuesday.

Filecoin Foundation will deploy the interplanetary file system (IPFS) in space aboard a Lockheed Martin satellite, the announcement stated. This follows on from an earlier partnership between Filecoin and the U.S. aerospace tech firm to design a decentralized file storage system for the space industry.

“With IPFS, data doesn’t need to go back and forth from Earth with every click,” said Filecoin Foundation President Marta Belcher in the announcement.”

The first launch will be a demonstration of the technology. Lockheed Martin’s spacecraft will perform the test once it is in orbit. This test will be used to evaluate use cases for decentralized storage in space. A particular focus will be on the viability of space-to-ground communication using IPFS.

IPFS is a peer-to-peer file storage and sharing system. The protocol uses unique identifiers for each piece of content. Nodes connect to their peers and can share these identifiers among themselves. Filecoin itself, a decentralized storage network, uses IPFS for its protocol.

IPFS differs from the centralized data storage of the internet. Instead of referencing content by unique identifies, it references content by its location on a server. IPFS data retrieval involves connecting to the closest node on the network that has the unique identifier of the required content.

© 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-focused bank operator Silvergate reported a more than $1 billion net loss for the fourth quarter as the sector suffered a “crisis of confidence.” 

Silvergate posted a net loss of $1.05 billion for the quarter, compared with an $18.4 million profit in the same period a year earlier, according to a statement. The company reported a $751 million loss on securities and a $135 million impairment charge related to the estimated $1.7 billion of securities it expects to sell in the first quarter of 2023 to reduce borrowings.

“The digital asset industry experienced a transformational shift, with significant over-leverage in the industry leading to several high-profile bankruptcies,” the company said in the statement. “These dynamics created a crisis of confidence across the ecosystem and led many industry participants to shift to a ‘risk off’ position across digital asset trading platforms.”

© 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 European Union’s landmark crypto regulation, Markets in Crypto Assets (MiCA), won’t see a final vote in the European Parliament until April, stalling the process for the new rules to be enforced. 

The delay is “technical” and most likely caused by issues in translating the almost 400-page file into the 24 official languages of the bloc, an EU Parliament spokesperson told to The Block.

The vote in Parliament’s plenary session, which was previously expected to take place by the end of 2022, was postponed to February in November, also due to translation issues.

MiCA is one of the first EU regimes to supervise the crypto sector and aims to tame what policymakers call the “wild west of crypto assets.” Most significantly, MiCA lays out rules for licensing firms offering crypto services in the EU and regulates stablecoin issuance.

With the final vote delayed, the European financial regulators need to wait longer before they can start drafting implementation rules. Bodies like the European Securities and Markets Authority and the European Banking Authority have 12 to 18 months to draft the technical standards on MiCA once it is officially approved. 

MiCA is not the only regulation that has been held back. The Transfer of Funds Regulation (TFR), which is meant to be implemented in tandem with MiCA, is also postponed to the same voting session in April. The TFR requires crypto transfers to include know-your-customer information on both the recipient and receiver side.

Some European countries are pushing for stricter crypto regulation ahead of MiCA spurred by the turbulent year in crypto markets. For instance, French policymakers and central bankers are calling for the implementation of mandatory crypto firm licensing in 2023.

© 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.

Data provider CryptoSlam and crypto news site Forkast.News have combined to become Forkast Labs, a web3-focused media company.

The pair, which are portfolio companies of software investment giant Animoca Brands, will build data tools, indices, and methodologies to value the digital economy, alongside providing reporting and analysis, a release said. 

Animoca Brands founder and executive chairman Yat Siu shepherded the merger, according to a report in Bloomberg. The terms of the deal were not disclosed. 

Former Bloomberg anchor and founder of Forkast.News, Angie Lau, and founder of CryptoSlam, Randy Wasinger, will be co-CEOs of Forkast Labs. Sarah Chang, co-founder of Forkast.News, will be COO of the combined entity.

“This merger comes at a pivotal moment for the crypto industry,” said Lau. “The entire industry has been valued against volatile price movements, which has created a high degree of speculation. Trust in crypto has been eroded as a result, but we have the power to change that with this merger.”

CryptoSlam was created in 2018 and has become a popular destination for tracking NFT prices. This time last year, it raised $9 million in an oversubscribed round led by Animoca. Forkast.News was founded the same year and raised a seed round in 2021, according to Crunchbase data. 

© 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.

Troubled Asian crypto lender Vauld has received a further extension to its legal protection from creditors — albeit a shorter delay than requested.

The company now has until Feb. 28 to explore options to ease its financial troubles, two sources with direct knowledge of the matter told The Block. Vauld, however, had sought protection through Apr. 21, according to an affidavit obtained by The Block. The firm’s previous creditor protection expires on Jan. 20. The latest extension was granted today in the Singapore High Court at a hearing before Justice Aedit Abdullah, the sources said.

Vauld halted client withdrawals in July and has been in discussions with rival Nexo since then for a potential acquisition. Earlier this month, the two parties entered a dramatic tussle. Vauld and its committee of creditors had rejected a “final” takeover proposal from Nexo because of concerns about its financial health and others issues, and Nexo said that Vauld CEO Darshan Bathija doesn’t have the best interest of its creditors in mind. Last week, Nexo’s office in Sofia, Bulgaria, was raided by the local authorities. The raid was part of a probe into suspected money laundering and tax crimes.

Meanwhile, Vauld customers’ funds remain stuck. The firm owes over $400 million to its creditors. Vauld has been pursuing an alternative restructuring, which would involve bringing in a third-party fund manager to oversee its assets. Vauld’s envisioned end goal is for the fund manager to invest its assets and use the target investment returns to repay the creditors.

“We are at advanced stages of discussions with potential fund crypto asset fund manager candidates with preliminary indicative terms having been obtained from two shortlisted fund managers,” the affidavit reads. “There is now clarity to pursue this option of establishing a fund with Vauld’s assets as we are unable to accept Nexo’s proposals.”

It remains to be seen whether Vauld is able to reach a solution for creditors with its latest extension. If the firm is able to make progress, the judge could approve the extension until April, said one of the two sources. Vauld did not immediately respond to a request for comment.

© 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.

Coinflex said that a proposed exchange for trading claims won’t use GTX for its name after a proposal to raise $25 for the project had been widely mocked on Crypto Twitter. 

“Building a marketplace for trading claims (in addition to crypto and potentially other assets) is an evolution of Coinflex’s commitment to building open and transparent financial markets,” the company said in a blog post. “New funds raised will be used for operational growth, which we strongly believe will increase value for Coinflex creditors.”

The Block reported earlier in the day that Su Zhu and Kyle Davies, the founders of collapsed crypto hedge fund Three Arrows Capital, were looking to raise the money with Coinflex founders Mark Lamb and Sudhu Arumugam for a new exchange that would give depositors the ability to transfer claims related to the also collapsed FTX crypto exchange for an immediate credit in a token to be called USDG. 

A pitch deck obtained by The Block had dubbed the new exchange GTX, “because G comes after F.” Coinflex, which is in the process of restructuring, said that was just a placeholder. 

Nic Carter, a founding partner at Castle Island Ventures, compared the latest venture to “arsonists returning to the scene of the crime, hawking buckets of water to their victims,” while Wintermute founder and CEO Evgeny Gaevoy warned anyone that invests in the exchange might find it difficult to work with his firm in the future – “on the relationship building side.” He added that Wintermute won’t participate in venture rounds where they appear on the cap table.

FAQs

The two Coinflex executives will remain with the company, though “key members” may be added as funds are raised, the company said, adding that it could be rebranded into the new entity. 

“CoinFLEX creditors/Series B will be the largest class of shareholders, and we are also discussing other benefits,” the company said, noting that it was also considering adding other asset classes such as equities and bonds. “Above all, we are committed to ensuring that any decisions and actions taken by Coinflex are in the best interest of Coinflex creditors.”

The company said it will provide a further update once a possible round or partnership materializes. 

© 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.