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OKX, the world’s second-largest crypto-only exchange by trading volume, said it would support an industry struggling with the collapse of the rival FTX exchange with a $100 million market recovery fund.

The company said in an email to The Block that the fund would provide assistance to projects struggling due to issues such as lack of financing.

“Having been in the industry for almost a decade, healthy development for all projects and ecosystems is of utmost importance to OKX,” the company said in the statement. “The company will therefore provide resources and integration support to high-quality projects, alongside provision of technical, liquidity, and other necessary support.”

Just days before FTX’s troubles began, OKX said it would follow the now-troubled exchange by obtaining a digital asset license in the Bahamas, where it planned to hire up to 100 people over the next 12 months. The Seychelles-based exchange operator said it would use the newly licensed entity to onboard customers, starting with clients from Mexico.

© 2022 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.

Stablecoin issuer Circle, days after proclaiming it had a very small exposure to FTX, disclosed in a Securities Exchange Commission filing that it holds about $10.6 million in equity investments related to the FTX Group.

“Circle is a tiny equity holder of FTX, and FTX is a tiny equity holder of Circle. Circle is also a tiny equity holder of Kraken, Coinbase and BinanceUS,” Circle CEO Jeremy Allaire tweeted on Nov. 9.

The company behind stablecoins USD Coin (USDC) and Euro Coin (EUROC) is one of several firms that have disclosed exposure to FTX since the crypto exchange filed for bankruptcy protection on Nov. 11.

Circle disclosed the amount of its equity investments related to FTX in a Nov. 14 Securities and Exchange Commission filing regarding a planned acquisition by special purpose acquisition company Concord Acquisition Corp, which would make Circle a public company traded on the New York Stock Exchange.

A Sept. 30 monthly attestation of Circle’s assets shows that nearly 47.3 billion USD Coins were in circulation, backed by nearly $47.5 billion worth of U.S. dollars held in custody accounts.

Crypto’s Lehman moment

The company also noted in the filing that it has “historically performed payment processing services for and issued and redeemed USDC for the FTX Group,” and plans to record FTX-related impairment in the fourth quarter.

“The company has suspended its services and transactions with the FTX Group and is in process of evaluating the impact on provision of future services to the FTX Group and the potential indirect financial impact of the FTX Group bankruptcy,” Circle wrote. 

Allaire has referred to the FTX crisis as crypto’s Lehman Brothers moment.

© 2022 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.

Quick Take

• Flashbots was established in 2020 to democratize access to MEV revenue, bring transparency to MEV activity and redistribute MEV revenue
• Flashbots currently has three product verticals: (1) Flashbots Auction (2) Flashbots Protect RPC and (3) Flashbots Data – in PoS Ethereum, the Flashbots Auction is built on MEV-Boost, an implementation of proposer-builder separation for Ethereum
• With 64.3% total block market share and 76.3% MEV-Boosted block market share (last 14 days based on mevboost.pics), Flashbots is a clear winner among the MEV-Boost relayers
• Flashbots’ decision regarding Tornado Cash transactions has drawn criticism within the Ethereum community – Flashbot’s dominance of the MEV and block production market could threaten Ethereum’s base layer neutrality by enabling censorship on the blockchain
• In October 2022, Flashbots announced an upgrade called SUAVE (Single Unifying Auctions for Value Expression) to address censorship resistance and decentralization concerns

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Congressman Jake Auchincloss, D-Mass., rejected the urgency for new crypto legislation in response to the collapse of FTX last week.

“The disaster with FTX is just another exclamation point around the need for U.S. clear consistent predictable legislation,” Auchincloss said. “The crimes FTX were committing were not some tech-specific, wiz-bang, 2022-era set of crimes. They were illegal 100 years ago. You can’t do that.” 

The role of venture capitalists and private investors pouring money into crypto startups without performing independent due diligence also drew Auchincloss’ criticism. “If you’re putting money down you should be getting open books in return,” he said.

Congress has reacted strongly to the failure of FTX, partially as a result of that company’s ubiquitous presence in Washington, D.C. The line of questioning was in response to growing alarm within Congress and calls for urgent legislation.

Auchincloss was speaking at an event hosted by the Blockchain Association. He began by saying: “My job is not to be a champion or a booster for the industry.”

Anticipated legislation 

Auchincloss, a moderate Democrat, also sits on the House Financial Services Committee, which has been working on legislation focusing on stablecoins.

He further addressed the status of partisan lock on crypto, whose loudest critics are generally progressives within his party. “I would disagree with the premise that just because it’s software it’s non-partisan. I would agree that we are probably still pre-partisan when it comes to crypto.”

As for anticipated legislative progress moving forward, he predicted that “elements of the Lummis-Gillibrand Bill can move next Congress.”

© 2022 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.

As decentralized applications (dapps) continue to evolve, the tools needed by developers and users to make effective use of them have become more sophisticated.

Trends such as decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), play-and-earn (P&E) gaming, and the metaverse are bringing new infrastructure requirements to the dapp development space. There is a new awareness and demand to access, operate, and store both on-chain and off-chain data in a decentralized and trustless way.

These dapp trends collectively define what “web3” is today. Web3 is an idea born out of the dapps it is composed of. What makes dapps special is their use of blockchains, which allows anyone to participate without monetizing their data. Moreover, blockchains allow something that web2 lost as it became dominated by companies providing services in exchange for your personal data: decentralization.

However, while decentralization infrastructure to support next-generation dapps is developing at a rapid clip, there is still an overreliance on centralized infrastructure. At one level or another of the web3 stack, this presents centralization concerns that proponents of web3 eschew in favor of decentralized and permissionless systems born from peer-to-peer and cryptographic technologies. It is only through these latter technologies that web3 can be built, operated, and owned by its users – the hallmark of decentralization.

In light of the current situation, we see many opportunities for infrastructure providers in the near future. It is currently a technical and financial burden for developers and users to set up and run their own blockchain infrastructure. Developers would rather focus on building and shipping their products and users seek out the best user experiences.

To illustrate how infrastructure providers can build a global infrastructure cooperative for web3, we present the doors-applications-primitives-protocols (DAPP). The DAPP framework is broken down into four major layers – starting from top to bottom:

1. Doors – Enable users to access and interact with web3
2. Applications – Connect users with Primitives and Protocols via a user interface and experience
3. Primitives – The task-specific, interoperable building blocks for decentralized Applications
4. Protocols – Construct the foundational blockchain architecture of web3

In this report, we dive into each layer and focus on prominent projects building at each layer to highlight how web3 operates today, where the limitations and opportunities are for infrastructure providers, and what the web3 of tomorrow may look like.

© 2022 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 markets slid on Wednesday as altcoins surrendered gains made at the top of the week. 

Bitcoin was down 2.6% at $16,479 over the past day, while ether lost 4.5% to trade at $1,207, according to data compiled by CoinGecko.

BTCUSD chart by TradingView

Altcoins, which had risen earlier in the week, fell even more. Polygon’s MATIC traded down 5.9% to $0.90, Polkadot’s DOT shed 4.7% to $5.72, and Solana’s SOL plunged 6.4% to $13.96.

The native coin of Chiliz, the home of socios and sports fan tokens, was up 4% over the past 24 hours. Several international teams — Argentina and Portugal — offer fan tokens through partnerships with socios. The fan token chain could be benefiting from the FIFA World Cup, which kicks off on Sunday. 

Crypto stocks trade down

Publicly traded companies exposed to cryptocurrencies or focused on blockchain technology traded down at the open.

Coinbase dropped around 10% shortly after 9:30 a.m. ET. Goldman Sachs lowered its price target for the exchange to $41 last week. The investment bank maintained its sell rating. 

Jack Dorsey’s Block was down over 3.2%, according to Nasdaq data via TradingView. 

Crypto bank Silvergate also fell at the open, shedding 6%. Silvergate tanked 12% on Tuesday as fears over the firm’s exposure to FTX spread. 

Elsewhere, Michael Saylor’s MicroStrategy — which owns 130,000 BTC — slipped 5%. 

The S&P 500 and the Nasdaq were down 0.54% and 1.1%, respectively.

Double dipping

Ark Invest followed up Monday’s GBTC purchase by adding a further 273,327 shares worth $2.6 million on Tuesday. Cathie Wood’s fund has purchased over $5.4 million in GBTC shares this week. 

Grayscale said on Wednesday that it had no exposure to Genesis — a separate Digital Currency Group firm that has halted customer withdrawals.

© 2022 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 House Financial Services Committee will hold a hearing next month on FTX’s collapse and the broader implications for the digital asset industry.

The committee says it expects to hear from “the companies and individuals involved, the companies and individuals involved, including Sam Bankman-Fried, Alameda Research, Binance, FTX, and related entities, among others,” for a hearing to take place in December.

“Oversight is one of Congress’ most critical functions and we must get to the bottom of this for FTX’s customers and the American people,” said Rep. Patrick McHenry, R-N.C., the top committee Republican, in a statement. “It’s essential that we hold bad actors accountable so responsible players can harness technology to build a more inclusive financial system.”

Rep. Maxine Waters, D-Calif., the current but likely outgoing chair of the House Financial Services Committee, added:

“The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds. Unfortunately, this event is just one out of many examples of cryptocurrency platforms that have collapsed just this past year.”

McHenry, who is expected to take the committee gavel next year, thanked Waters for working together on the hearing.

“I appreciate Chairwoman Waters’ working with Republicans to deliver accountability through a bipartisan process,” he said in their joint statement announcing the hearing.

FTX declared Chapter 11 bankruptcy last Friday. 

© 2022 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.

Tencent, the world’s largest gaming company, saw a 3% increase in its international gaming revenue to $1.65 billion in the third quarter as domestic Chinese revenue dropped 7% following two years of tech industry crackdowns.

Tencent will also distribute the large majority of its stake in food delivery company Meituan to shareholders as it once again scales back its exposure to China’s beleaguered tech industry, despite having previously denied it would do so.

The Class B stock, worth over $20 billion, will be distributed in a similar manner to the $16.4 billion stake in commerce platform JD.com which Tencent gave to shareholders last year.

Prior to the previous quarter, Tencent had reported double-digit growth for almost every quarter since going public in 2004.

© 2022 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.

Genesis Global Capital, the lending business of Genesis Trading, temporarily suspended redemptions and new loan originations in the wake of FTX’s recent collapse and the earlier Three Arrows Capital implosion, kicking off another wave of reactions from crypto players with which it did business.

“The impact lies with the lending business at Genesis and does not affect Genesis’s trading or custody businesses,” parent company Digital Currency Group said in a thread on Twitter. “This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion.”

Business operations at DCG and its other wholly owned subsidiaries were not affected.

The parent company last week gave its Genesis Trading unit a $140 million equity infusion after it said its derivatives business had $175 million locked up on the FTX platform. The trading unit said last week that its operating capital and net positions in FTX were not material to its business. 

Genesis will continue to offer over-the-counter trading for spot and derivatives trading, plus its custody services, according to comments made by Genesis Interim CEO Derar Islim during a client call that was reported by CoinDesk.

Max Boonen, founder and director at B2C2, said his firm wanted to extend an offer to purchase loans from Genesis Trading’s book “to alleviate the current liquidity shortfall.”

“I didn’t have Genesis on my bingo card,” he wrote on Twitter. “Wow. That leaves very few players in the OTC market.”

Fallout spreads to Gemini

The announcement from Genesis quickly spread to crypto exchange Gemini, which said its Earn program “will not be able to meet customer redemptions within the service-level agreement of five business days.”

“The past week has been an incredibly challenging and stressful time for our industry,” the Winklevoss twin-led business wrote in a blog post. “We are disappointed that the Earn program SLA will not be met, but we are encouraged by Genesis’ and its parent company Digital Currency Group’s commitment to doing everything in their power to fulfill their obligations to customers under the Earn program.”

Genesis was the largest prime broker in the crypto space. In March, it had $14.6 billion of active loans, according to The Block’s Data Dashboard. But the lending business took a big hit when cryptocurrency Luna collapsed, removing $30 billion from the crypto market cap and pushing trading firm Three Arrows into bankruptcy. Genesis had made large loans to Three Arrows, which were not repaid. Genesis’ parent company DCG took on the debt, which was estimated north of $1 billion.

Genesis subsequently started slowing down its operations, and its loan originations dropped by a third in dollar value last quarter compared to the previous one. It also reported just $2.8 billion in active loans. At the same time, it made cost reductions, laying off 20% of its workforce. Top executives left the company, including former CEO Michael Moro and former Chief Risk Officer Michael Patchen.

Grayscale says it’s “business as usual”

Grayscale, a crypto asset management firm also under the DCG umbrella, said that its products are operating “business as usual” and operations have not been impacted by “recent events.” The firm said it’s not a counterparty or service provider for any Genesis Global Capital  products.

The company also addressed its Grayscale’s Bitcoin Trust, GBTC, which it said remains backed by underlying assets that are “safe and secure, held in segregated wallets in deep cold storage by our custodian Coinbase.”

Canadian crypto lender Ledn said it has no exposure to Genesis Global Capital and is fully operational. While Genesis Global Capital was Ledn’s primary lending partner at the start of its operations, Ledn has since reduced its risk concentration by diversifying its pool of lending partners, the company said. The crypto lender added that it did not have any active lending relationship with Genesis beyond October.

The developments come as the situation around FTX grows more dire, with reports saying regulators in the Bahamas are moving to freeze its assets seeking the court appointment of a liquidator. Regulators in the U.S. have also been said to be probing FTX and its broader business empire.

Binance CEO Changpeng “CZ” Zhao said the exchange he runs did not rely on Genesis or any other third party for its Earn products.

“For on-chain staking, Binance uses our own nodes where possible,” he wrote on Twitter.

With reporting assistance from Tim Copeland, Yogita Khatri, Adam James and Osato Avan-Nomayo.

© 2022 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.

Grayscale said that its products are operating “business as usual” and operations have not been impacted by “recent events” after Genesis Global Capital halted withdrawals. 

Grayscale said it’s not a counterparty or service provider for any of its products. Genesis Global Trading, a separate entity, is an affiliate of Grayscale.

The company addressed its Grayscale’s Bitcoin Trust, GBTC, which it said remains backed by underlying assets that are “safe and secure, held in segregated wallets in deep cold storage by our custodian Coinbase.”

Grayscale also noted that it “does not borrow, lend, rehypothecate, or otherwise encumber the products’ underlying assets, and the custodian for the assets is prohibited from engaging in such activity.” 

The statement follows a slew of crypto exchanges and entities scrambling to prove reserves following the high-profile collapse of FTX, which filed for Chapter 11 bankruptcy protection last week.

© 2022 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.