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Digital Currency Group (DCG), the parent company of crypto trading firm Genesis,  is stepping in to provide a $140 million equity infusion to Genesis after it said that its derivatives business had $175 million locked up on the FTX platform.

The capital infusion will be used to strengthen Genesis’s balance sheet and bolster its position in the crypto market, the firm said in a note sent to a counterparty, which was reviewed by The Block.

Genesis’s operating capital isn’t impacted and the net positions on FTX are not material, said Genesis on Thursday. It also has no ongoing lending relationships with FTX or sister firm Alameda Research, it said. This message was again reiterated in the note.

FTX filed for bankruptcy on Friday after facing a liquidity crunch as its FTT token cratered. A rescue deal with Binance fell through Wednesday after the rival exchange saw FTX’s finances. 

Genesis recently reshuffled its leadership team and laid off staff. Those changes appeared to be in direct response to high-profile losses related to defunct crypto hedge fund, Three Arrows Capital (3AC). It lent $2.36 billion to the hedge fund, DCG stepped in to take on the firm’s liabilities and made a $1.2 billion claim against 3AC. 

© 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 exchange FTX has moved to file for Chapter 11 bankruptcy, according to a company statement.

FTX said it is seeking bankruptcy protection in Delaware. In addition to FTX Trading Ltd., the company said more than 100 corporate entities affiliated with FTX, including Alameda Research, are also filing for bankruptcy.

In the announcement, FTX said that CEO Sam Bankman-Fried has resigned. John Ray has been appointed to take the position.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” the statement said.

The move caps a stunning downfall, given FTX’s position in the market and public prominence, as well as that of its senior leadership.

A serious liquidity crisis brought on by revelations about its balance sheet pushed FTX toward insolvency. Binance, which signed a letter of intent that could have led to an acquisition, ultimately passed on the deal, citing due diligence concerns as well as reports of investigations by American regulators.

© 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 trading shop Folkvang has some assets locked on FTX that it has used to facilitate trading, but can “easily absorb this hit.”

The firm issued a statement on Twitter outlining its exposure, alongside a number of other trading firms, including GSR and Genesis.

“Folkvang is highly liquid and extremely solvent,” it said. “Folkvang does hold some assets on FTX to facilitate trading; thankfully, we are well diversified and not exposed to any single point of failure, including FTX.”

FTX announced that it was facing a liquidity crunch earlier this week and that it would be acquired by rival exchange Binance. The deal with Binance fell through on Wednesday. On Thursday, FTX CEO Sam Bankman-Fried apologized and said that he would look to wind down trading at sister firm Alameda Research. 

Folkvang is a crypto quantitative trading firm and liquidity provider that trades across major coins and exchanges, according to its website. It was founded in 2020 and its only listed outside investor is Alameda Research, according to data from Crunchbase.

The firm’s CEO and head of trading, Mike van Rossum, was referred to as a “key player” on the FTX exchange by Bankman-Fried when Alameda made its investment in 2020.

There has been crypto twitter speculation that Folkvang might be heavily impacted by the financial woes of FTX and Alameda Research.

Still, the firm said: “It has been a very dark and difficult few days for crypto.” It added: “We are absolutely shocked and saddened by the events of the week but have full faith that we can come out of this stronger. “

© 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.

Multiple centralized crypto exchanges have indicated over the last few days that they will be offering proofs of reserves, a system through which users will be able to check the amount of funds held on the platforms, though not necessarily their liabilities.

This is facilitated by a “merkle proof,” a cryptographic tool that helps create a summary of funds in an exchange’s wallets and generates a proof that can be verified on-chain, all without exposing sensitive customer information.

Trust has been plummeting for centralized exchanges over the collapse of FTX exchange, which most traders had considered to be trustworthy. Its CEO, Sam Bankman-Fried, never disclosed that it was loaning out customers’ deposits for venture investment and lending activities. Much of the current distrust stems from FTX’s mishandling of customer funds.

The exchange used about $10 billion of $16 billion in customer deposits to finance other activities, according to a WSJ report. 

Exchanges are desperate to assure users

Binance, which is the largest crypto exchange by daily trading volume, in a bid to be more transparent provided a snapshot of the reserves of its crypto wallets, both internal and public facing.

Working off this data, Nansen, an on-chain data provider, displayed a dashboard showing Binance’s reserves, which are currently worth more than $60 billion. Other exchanges want to emulate this and are scrambling to assure users of their transparency.

Nansen’s research analysts are currently working with exchanges to display their proofs of reserves. Alex Svanevik, CEO of Nansen, said his team had received requests from exchanges asking to display their proofs on its platform.

Representatives from exchanges — OKX, Crypto.com, Kucoin, and Bybit — have said that they will either publish a list of their crypto addresses or implement a proof of reserves system akin to that of Binance, given the pressing concerns about the backing and safety of funds on centralized exchanges.

Both OKX and KuCoin, said they planned to share their holdings in coming weeks. “We’re hiring an auditor & will publish an auditable Merkle POF asap,” OKX tweeted. 

“Protecting user funds is the top priority at KuCoin. We will release the Merkle tree proof of reserves or POF in about one month,”  KuCoin CEO Johnny Lyu said.

While this may be a good step in the direction of exchange transparency, such proofs of reserves cannot provide a full picture of a firm’s financial health. The metric only shows the exchange’s dollar value of token holdings across exchange-provided addresses, the source of which can be entirely customer funds. 

It does not show the amount of liabilities an exchange may have on its balance sheet, Martin Lee of Nansen said. As such, an exchange’s financial position may differ from what is provided in a proof of reserves.

© 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.

FTX’s European Union license in Cyprus could be suspended in yet another blow to Sam Bankman-Fried’s crypto exchange, according to Bloomberg. 

FTX Europe looks set to have its European Union investment firm license suspended as soon as today, Bloomberg reported, citing people familiar with the matter. The exchange received the license — which enables it to operate across Europe — a little under two months ago. 

Bankman-Fried’s exchange was granted the license by the Cyprus Securities and Exchange Commission. The license requires FTX Europe to meet standards outlined in the European Union’s MiFID II directive. The standards include the segregation and protection of client funds, business transparency and capital adequacy.

FTX first came under scrutiny last week when a balance sheet relating to its sister trading shop Alameda Research was leaked. The balance sheet showed significant liabilities and holdings of FTT, FTX’s exchange token. 

Pressure from Binance’s threatened sales of FTT put increasing pressure on FTX and its trading arm. By Tuesday, Binance had agreed to acquire the struggling exchange — but the deal was off on Wednesday after a review of FTX’s finances. 

In the days since rumors over the firm’s potential insolvency have grown to a fervor. The exchange is seeking to raise more than $9 billion to plug a financial shortfall, Reuters reported on Thursday.

Zane Tackett, head of institutional sales at FTX, resigned on Nov. 8 and sent a letter to clients stating that his team was “completely in the dark” about the firm’s potential insolvency over the course of this week. 

FTX didn’t immediately respond to a request for comment.

© 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.

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 Jan. 20 to explore options to ease its financial troubles, according to an email from Vauld to its creditors obtained by The Block. Vauld, however, had sought protection through March 7. The firm’s previous creditor protection expired on Nov. 7 and on the same day, the latest extension was granted in the Singapore Hight Court at a hearing before Justice Aedit Abdullah, according to the email.

Vauld halted client withdrawals in July and owes over $400 million to creditors. At the time, rival Nexo entered into a 60-day exclusive due diligence agreement with Vauld to potentially acquire it, but it has extended the due diligence period twice. Last month, The Block reported that Nexo could take “as long as needed” to decide on the potential deal, while it is “cautiously optimistic” about it.

Meanwhile, customers’ funds remain stuck. If Nexo doesn’t acquire Vauld, the latter has said it has other options to explore, including issuing a token and raising capital.

If Vauld were to apply for a further moratorium, a hearing would take place on Jan. 17, subject to the availability of the court, the email said.

In the meantime, the court has ordered Vauld to submit an affidavit by Nov. 25 addressing issues, including the situation faced by its Indian entity, Flipvolt Technologies. In August, India’s Enforcement Directorate froze assets worth $46 million after it found a Vauld client was involved in a money laundering case.

“We are committed to alleviating the hardship faced by our creditors, and the company is working towards achieving a restructuring that would be in the interests of the creditors,” Vauld said in the email.

The firm did not immediately respond to a request for comment.

© 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 investment firm Pantera Capital has limited exposure to collapsed crypto exchange FTX, despite its wide range of portfolios, according to a letter from Pantera Capital partner Paul Veradittakit.

 FTX announced that it was facing a liquidity crunch earlier this week and that it would be acquired by rival exchange Binance. The deal with Binance fell through on Wednesday. On Thursday, FTX CEO Sam Bankman-Fried apologized and said that he would look to wind down trading at sister firm Alameda Research. 

“On the Pantera side, we had insignificant exposure on the FTX platform and got exposure to FTX as a shareholder primarily through the acquisition of our portfolio company Blockfolio,” Veradittakit said.

FTX acquired the crypto data application Blockfolio in 2020 for $150 million. The Block reached out to both Veradittakit and Pantera Capital for more detail on the exposure from the Blockfolio investment, but had not received a response by publication time.

Pantera is one of the oldest investment firms in the crypto industry, having been founded in 2013. It oversees $5.8 billion in assets, according to a recent investment adviser filing, and runs a number of different fund strategies including an early stage token strategy, a blockchain fund that is a venture fund investing in equity and a liquid token strategy. 

The Block previously reported that the early stage token fund was down 71% this year through the end of September. The dramatic drop in the fund’s performance comes at a time when the majority of tokens and cryptocurrencies are down by 50% or more in the wake of a tricky macro environment with interest rates rising amid surging inflation.

Despite the underperformance this year, the early stage fund has still returned  372% to investors since its inception.

Checking in on portfolio companies

The highest priority for the firm over the past few days has been checking in on the exposure its portfolio firms have to FTX, Veradittakit said.

“After checking in, 95% had little to no issues,” Veradittakit said. “Of those that had issues, it was involving having treasury with FTX and we are helping them through options.”

“I feel for those, consumer and institutions, that have their assets locked in FTX right now,” he added. “There will probably be rippling effects that bleed into other assets associated with FTX, investments that they made, and other commercial relationships that they had. The company has hired top talent and had invested into some amazing companies so those are valuable assets for the industry and we should support those.”

© 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.

Phillip Gillespie, group CEO of crypto market maker B2C2 who managed its acquisition by Japanese bank SBI Financial Services, is stepping down, the company said today. 

Effective Nov. 4, current U.S. CEO Nicola White assumed the role of group CEO as the Tokyo-based Gillespie looks to take on a venture role with SBI in the digital asset space. White was previously Citadel Securities’ global chief operating officer of fixed income and joined the market maker in July last year. 

“While we are experiencing volatile times in the crypto market, our firm has continued to provide critical, deep liquidity to our clients,” White said in a statement. “B2C2’s role as a pioneer that creates a sustainable ecosystem, is to support our clients and the market as a whole, with dependable liquidity and robust risk management. Despite the current stresses the market is experiencing, in the future the crypto market will emerge stronger.” 

A company spokesperson stressed that the appointment wasn’t linked to current market upheaval spurred by fears over FTX’s potential insolvency, but had been planned over the last three months. 

Founded in 2015, the UK-based firm operates as a market maker in the digital asset space and moved into options and lending products last year after its 2020 acquisition. 

The FTX fallout

The market maker confirmed to The Block that it has no direct exposure to FTT or Alameda and that its limited exposure to FTX as a secondary trading venue had been hedged. It said that amid price volatility seen in the wake of this week’s events, the trading firm has seen daily user count increase by about 30%. 

Other digital asset market-making firms have also disclosed their exposures to FTX in the wake of the exchange’s ongoing collapse. Yesterday, Genesis Trading said that its derivatives arm had $175 million locked up on the exchange. Fellow market makers GSR and Wintermute also noted FTX exposure but said their situations were manageable. 

Gillespie joined the company in February 2018 as chief executive officer of B2C2 Japan, before moving into the group CEO role. He previously held positions at Goldman Sachs, JP Morgan and Barclays. 

As the crypto market has been rocked by the collapses of Terra-Luna, Three Arrows Capital, and most recently FTX, crypto firms have seen a number of executive leadership shakeups in recent months. Last month, Bitmex CEO Alexander Höptner stepped down, following in the footsteps of Kraken’s Jesse Powell, NYDIG’s Robert Gutmann and Genesis CEO Michael Moro. 

© 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.

Mechanism Capital, a crypto venture capital firm with hundreds of millions of dollars in assets, has money tied up in FTX, the embattled crypto exchange.

A backer of well-known crypto startups — such as Nansen, 1inch and Arbitrum — Mechanism is one of the many investment firms currently unable to withdraw funds from FTX, according to two people with knowledge of the matter.

The exact amount it has stuck in FTX is unclear, but Andrew Kang, co-founder and partner at Mechanism, said the sum is “non-trivial” — and the company is exploring legal options. 

“Like the rest of the market, we have taken a hit — but what’s most important for us is that we are still trading, actively assessing investment opportunities and are able to support founders we work with,” Kang told The Block.  

Mechanism’s core trading and venture capital arm is comprised of proprietary capital. So, too, is a $100 million fund that the company launched in January to invest in play-to-earn gaming startups.

Earlier today, FTX’s head of institutional sales sent a letter to VIP clients saying he had resigned, and stating that his team was “completely in the dark” about the firm’s potential insolvency over the course of this week.

A growing number of companies — from lenders to crypto exchanges — have issued statements about the nature of their exposure to FTX in the days since its spectacular collapse. The Block revealed on November 9 that some 10% of crypto venture capital firm Multicoin Capital’s total assets are stuck on the exchange.

Venture investors in FTX’s businesses are facing massive losses. Sequoia Capital, the venerable Silicon Valley investor, has already written down investments of $213.5 million in FTX to zero.

© 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.

Episode 111 of Season 4 of The Scoop was recorded live with The Block’s Frank Chaparro and Cosmos Co-Founder and CEO of Informal Systems Ethan Buchman.

Listen below, and subscribe to The Scoop on Apple, Spotify, Google Podcasts, Stitcher or wherever you listen to podcasts. Email feedback and revision requests can be sent to podcast@theblockcrypto.com.

Cosmos contributors recently released a new whitepaper that proposes major upgrades to the Cosmos Hub, the central blockchain of the Cosmos ecosystem.

A community vote to determine whether or not the proposed changes are integrated into the Hub concludes on Monday, Nov. 14th.

In this episode of The Scoop, Cosmos Co-Founder and Interchain Foundation President Ethan Buchman explains what will change if Atom 2.0 passes, as well as how these changes fit into his overall vision for how Cosmos’s app-chain architecture will continue to evolve.

According to Buchman, key to Atom 2.0 is the introduction of a security model which will allow new application-specific blockchains to bootstrap security by utilizing the Cosmos Hub’s existing validator set: 

“The kind of change that’s coming to the Hub specifically will allow new application-specific blockchains to launch that use the same validator set as the Cosmos Hub and use the same stake that already exists on the Cosmos Hub.”

Not only will the proposed changes to Cosmos Hub make it easier and more secure for projects to launch their own chains, but Buchman anticipates it will increase the amount of development activity on the Hub itself:

“This for the first time, opens the door to a sort of more active development environment and development velocity in and around the Cosmos Hub, whereas in the past, the Cosmos Hub was very slow to evolve.”

During this episode, Chaparro and Buchman also discuss:

• Why blockchain security is more than just an economic consideration.
• The sovereignty of the individual versus sovereign communities.
• How we can design more sustainable systems.

This episode is brought to you by our sponsors Tron, Ledn
About Tron
TRON is dedicated to accelerating the decentralization of the internet via blockchain technology and decentralized applications (dApps). Founded in September 2017 by H.E. Justin Sun, the TRON network has continued to deliver impressive achievements since MainNet launch in May 2018. July 2018 also marked the ecosystem integration of BitTorrent, a pioneer in decentralized web3 services boasting over 100 million monthly active users. The TRON network completed full decentralization in December 2021 and is now a community-governed DAO. | TRONDAO | Twitter | Discord |

About Ledn
Ledn was founded on the unshakeable conviction that digital assets have the power to democratize access to the global economy. We help you to experience the real life benefits of your Bitcoin without having to sell it. Start a savings account, take out a loan, or double your Bitcoin. For more information visit Ledn.io

© 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.