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DFX Finance, a decentralized exchange protocol for fiat-pegged stablecoins, reported that it was attacked at 2:21 pm ET. An unknown attacker siphoned approximately $7.5 million from DFX, according to estimates from security researchers at BlockSec.

The DFX Finance team acknowledged the security exploit and said it has paused all of its smart contracts to contain the issue. “We were notified of the suspicious activity within 20-30 mins of the first transaction and executed a pause on all DFX contracts within a few minutes after confirming the attack,” it said.

The incident appears to be a flash-loan-enabled attack that let the hacker make a malicious withdrawal from DFX. Of the $7.5 million in stolen assets, the attacker could only transfer $4.3 million worth of assets into their wallet — including 2963 ether ($3.8 million) and some $500,000 in stablecoins.

The remaining portion of the stolen assets — about $3.2 million — was extracted by an MEV bot in a front-running transaction, also called a sandwich attack. The bot-extracted funds sit in an address controlled by the bot operator and can be recovered if the operator is willing. DFX Finance has already asked the operator to return them.

The attack vector

The attacker took advantage of an insecure flash-loan mechanism offered by DFX Finance on the Ethereum blockchain. A flash loan is a feature in which a large amount of cryptocurrency can be borrowed with no collateral, only if those funds are returned in the same transaction.

During the attack, the attacker borrowed stablecoins within DFX Finance and then deposited them back into DFX’s liquidity pools with an “insecure callback function” that bypassed its flash-loan checks. After the flash loan, the attacker still had liquidity pool tokens in possession, which they sold off. 

The attack drained DFX’s liquidity pool tokens via multiple flash loans to take control of over $7.5 million. Security analysts at BlockSec say liquidity-pool deposits should not have been allowed, as it tricked the protocol into believing the funds have been returned and were secure. 

“When a user borrows money, the protocol should not allow any function calls that can change the balance of the DFX protocol,” BlockSec CEO Yajin Zhou told The Block.

While flash loans are meant for arbitrage trading and improving capital efficiency, hackers have regularly abused them to exploit certain vulnerabilities.

Last year, DFX Finance raised a $5 million seed round led by Polychain Capital and True Ventures.

© 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 team behind FTX Future Fund, a project of the FTX Foundation, has quit.

“We were shocked and immensely saddened to learn of the recent events at FTX,” the team wrote in a post on Effective Altruism Forum, adding: “We are now unable to perform our work or process grants, and we have fundamental questions about the legitimacy and integrity of the business operations that were funding the FTX Foundation and the Future Fund.”

FTX Future Fund was launched in February of this year to improve humanity’s long-term prospects. It planned to distribute at least $100 million and up to $1 billion this year. The foundation itself was established last year by FTX CEO Sam Bankman-Fried. But in a shocking turn of events over the last week, Bankman-Fried’s net worth has declined from around $16 billion to less than $1 billion, according to data tracked by Bloomberg.

FTX reportedly tapped customer assets to fund the risky bets of its affiliated trading firm, Alameda Research — setting up its implosion. Alameda is said to owe FTX about $10 billion. FTX paused customer withdrawals earlier this week and the crisis forced the exchange to scramble for emergency funding. Alameda Research has since been shut down.

“We don’t yet have a full picture of what went wrong, and we are following the news online as it unfolds,” the FTX Future Fund team wrote in the post, adding: “But to the extent that the leadership of FTX may have engaged in deception or dishonesty, we condemn that behavior in the strongest possible terms.”

The FTX Foundation also runs FTX Climate and FTX Community philanthropic projects. The foundation has donated over $190 million to date, according to FTX’s website. It is possible it may no longer be operational.

The Block has reached out to FTX for comment.

Bankman-Fried appeared determined to raise funding yesterday, despite regulators having reportedly started investigations into FTX — including the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission and the U.S. Justice Department. Yesterday, the Securities Commission of the Bahamas froze the assets of FTX Digital Markets and related parties. 

Earlier today, The Block reported that FTX’s head of institutional sales, Zane Tackett, resigned. He added that he and his team were “left completely in the dark” about FTX’s insolvency.

© 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.

Zane Tackett, head of institutional sales at FTX, 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. 

He informed VIP clients of the embattled crypto exchange of his resignation in a message — obtained by The Block from two sources — sent late on Nov. 10. 

“Foremost I would like to make it abundantly clear that the VIP team was left completely in the dark and were in no way aware that FTX was insolvent or that customer assets were at any point not backed 1:1,” he said.

“I wanted to make sure clients didn’t hold ill will towards my team for telling them things are fine when they were also completely in the dark,” Tackett told The Block, in response to questions about the message. “They were also fooled.”

The VIP team struggled to handle withdrawals in the wake of Binance announcing it would sell its stake in FTX’s native token FTT. Those headwinds resulted in tensions between FTX leadership and the VIP team, according to several sources. 

Tackett tweeted earlier today that his FTX Slack account had been deactivated. The Block contacted FTX for comment, but did not receive a response by 11.30 p.m. ET.

The news comes with an array of crypto companies — ranging from exchanges to venture capital investors — struggling to withdraw funds from FTX, after the stunning collapse of the company earlier this week.

Earlier today, the Wall Street Journal reported that FTX had lent Alameda Research, its sister trading firm, billions of dollars in customer assets.

© 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.

Ping, a new freelancer-focused neobank, raised $15 million in a seed round as it plans to expand its focus from Latin America to new regions.

Firms including Y Combinator, Race Capital, BlockTower, Danhua Capital, Signum Capital and Goat Capital participated in the round.

“We’re going to be expanding big time,” Ping co-founder Jack Saracco said in an interview. He noted that the company currently serves users in 16 countries and hopes to expand its focus to markets including Southeast Asia and Western Africa. The company will also put the funding toward marketing and sales. 

Ping’s app-based platform focuses on digital nomads and freelancers working internationally. It aims to ease the process of getting paid in dollars and converting those funds to local currency. It allows users to create a U.S.-dollar bank account, invoice their employers and receive local currencies or crypto through bank transfers.

The Miami-based company, founded in 2021, said it has processed more than $1 million in payment volume in its first few months of operations. It launched through Y Combinator about four months ago. 

Ping is built on the rails of Latamex, which offers on- and off-ramps for exchanging crypto and fiat. Its platform allows users to buy and sell bitcoin, ether and Litecoin, as well as Tether (USDT) and USD Coin (USDC). Users can also deposit or withdraw U.S. dollar fiat currency. The company also has a waitlist open for a new international Visa card. 

© 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 faces an investigation by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) into its mismanagement of customer funds and the firm’s relationships with FTX.US and Alameda Research.

The investigation by the SEC and CFTC stems from the recent FTX liquidity crisis that has caused a massive contagion effect across the crypto markets.

The SEC first began looking into FTX US’s crypto lending activities and operations months ago, Bloomberg first reported, citing anonymous sources.

Now, the CTFC is getting involved with the SEC and investigating FTX in addition to FTX.US, looking into the relationships between the two exchanges and trading firm Alameda, Bloomberg reports.

The FTX liquidity crisis has raised a concern and a call for more regulation and oversight for which agency should oversee trading platforms like FTX.

The CTFC typically has only maintained oversight over derivatives in the crypto markets, but that may change if it believes fraud or manipulation is occurring. The SEC, on the other hand, oversees any token that is a security — another area that has lacked oversight and guidance and has raised concerns around Bitcoin and Ethereum’s status under the SEC’s Howie test. Regulators currently oversee crypto investment firms.

This past week, regulators requested details about the ownership structure of FTX.US and FTX. Both regulators are actively searching for any management or executive board overlaps. In addition, they are looking into any financial ties between the two separate exchanges, according to Bloomberg. 

This is not the first time either commissions have expressed concerns around cryptocurrencies. Gary Gensler, chair of the SEC, has voiced multiple warnings about crypto exchanges like FTX. His concerns center around security law violations with unregistered tokens offered to U.S. citizens that may classify as securities. Gensler has brought up other potential violations such as exchanges front-running customer transactions, loans and conflict of interest.

CFTC officials have discussed the mismanagement of customer funds in the past, citing cryptocurrencies as the top billing on its latest annual report on enforcement actions. 

© 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 bipartisan authors of Senate legislation that would increase oversight of cryptocurrencies considered to be digital commodities in the U.S., like bitcoin, plan to move forward with the bill.

Embattled FTX CEO Sam Bankman-Fried had been the strongest industry proponent of the bill, known as the Digital Commodities Consumer Protection Act. The bill would grant the Commodity Futures Trading Commission, one of the two U.S. markets regulators, more power over cryptocurrency markets and exchanges.

“The recent collapse of a major cryptocurrency exchange reinforces the urgent need for greater federal oversight of this industry,” Senate Agriculture Committee Chair Debbie Stabenow, D-Mich., said in a statement. “Consumers continue to be harmed by the lack of transparency and accountability in this market. It is time for Congress to act.”

Stabenow added that she is working with her Republican counterpart on the committee, Sen. John Boozman, R-Ark., and regulators to finalize the bill in preparation for a committee vote.

Boozman also committed to move forward on the bill in his own Thursday night statement.

“In light of these developments, we are taking a top-down look to ensure it establishes the necessary safeguards the digital commodities market desperately needs,” Boozman said. “Chairwoman Stabenow and I remain committed to advancing a final version of the DCCPA that creates a regulatory framework that allows for international cooperation and gives consumers greater confidence that their investments are safe.”

Both urged regulators to use already existing powers to prosecute misconduct in the digital asset industry.

The bill has split industry. Some, outside of Bankman-Fried, are quietly supportive of the idea of clearer regulatory rules around bitcoin and — probably — ether. Others gleefully declared it “dead” as soon as FTX collapsed, and had pushed back against the idea behind closed doors even before friction over the legislation spilled out into the open on crypto Twitter. 

Leaders of the House Financial Services and Senate Banking Committees also have called for new legislation to help govern the industry in the wake of FTX’s shocking implosion.

© 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 lender BlockFi suspended withdrawals and will not be able to operate business as usual given the lack of clarity over the status of FTX, the company said on Twitter.

“We are shocked and dismayed by the news regarding FTX and Alameda,” the company tweeted. For the time being BlockFi will limit platform activity, and client withdrawals will be paused “as is allowed under our Terms,” the company said. No exact time frame was specified in terms of service restoration.

Earlier in the day BlockFi said that it would delay the processing of ACH and wire transactions scheduled for Nov. 11 until Nov. 14, due to the observance of Veterans Day by its U.S. based-banking partner Silvergate. It is now unclear whether those delayed transactions will go through.

In July, BlockFi brokered a $680 million deal with FTX.US that included a $400 million credit line and an option for FTX to buy the firm for $280 million.

BlockFi did not immediately respond to The Block’s 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.

The lovelorn among us are prime candidates for crypto scammers, a new bulletin from the U.S. Consumer Financial Protection Bureau (CFPB) shows.

CFPB data show that fraud and scams were the focus of about 40% of the 8,300 crypto-related complaints it  received between October 2018 and September 2022. Among the major culprits were romance scams, impersonation and a tactic called “pig butchering.” 

“Crypto-assets are often targeted in romance scams, where scammers play on a victim’s emotions to extract money,” the CFPB wrote in the bulletin.

The so-called “pig butchering” technique involves people pretending to be successful crypto traders on social media and convincing victims to set up accounts and make investments that will supposedly earn them returns.

Impersonating social media influencers or crypto companies’ customer service representatives were also popular tactics, the CFPB bulletin said. A lack of customer service options on crypto platforms has opened the door to scammers who try to impersonate representatives, it said, with the aim of stealing crypto from customers’ wallets. 

Transaction problems — such as not being able to execute transactions immediately —were the second-biggest cause of crypto complaints the bureau received. 

Other problems the CFPB recorded included hacking, issues with identity verification and technology problems with crypto platforms. 

“In situations where consumers have been defrauded, or had their account hacked, they are often told there is nowhere to turn for help,” the CFPB said in a statement about the bulletin. A majority of the crypto complaints originated in California. 

In addition to looking out for the above-mentioned scams, the CFPB also encouraged consumers to report crypto websites or apps misusing the Federal Deposit Insurance Corporation name or logo to make it seem like they carry government protections. In August, the FDIC sent cease-and-desist letters to five companies: FTX.US, Cryptonews.com, FDICCrypto.com, SmartAsset.com and Cryptosec.info.

© 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.

LayerZero Labs, a cross-chain messaging and bridging startup, said it has come to an agreement with FTX, FTX Ventures and Alameda Research for an equity buyout.

LayerZero Labs had raised a Series A+ round led by Sequoia Capital, a16z and FTX Ventures in March and was valued at $1 billion. 

In a letter issued to investors and later shared on Twitter, LayerZero Labs said the deal includes the entirety of FTX’s equity position, token warrants and “any and all agreements” between the firms.

Although LayerZero claims it is well-capitalized with approximately $134 million — 90% of which is in cash or stablecoins — it held $11.5 million on FTX.

“For the sake of sanity we’ll treat this as a $0 for the moment, although presumably some amount on the dollar is likely recoverable,” the letter said.

Although LayerZero took a hit, co-founders Bryan Pellegrino and Ryan Zarick claim to have at least seven years of financial runway with their current holdings. In May, The Block revealed that LayerZero Labs had been seeking fresh funding in a round that would have valued it at $3 billion — but the deal is yet to close. 

In an acquisition separate from its equity buyout, LayerZero purchased all of Alameda’s exposure to Stargate, a protocol under the LayerZero Labs umbrella, by buying all of its locked STG tokens. Alameda had acquired these tokens in March during the STG public token sale, a controversial action as they bought the entire supply in the first available block and had been farming and selling the token. The total amount available was $25 million.

Alameda locked the purchased STG tokens which emitted yield in the form of more STG. It then proceeded to sell the tokens it received from staking in various transactions like this one. 

Former Alameda co-CEO Sam Trabucco had tweeted earlier on the same day Alameda made its first sale of STG it had received from farming — not its purchased STG it had locked — “we won’t be selling any of the tokens we bought for at least 3 years.” 

© 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.

Employees working for the U.S. arm of FTX’s cryptocurrency exchange business are trying to sell company assets, in some cases without CEO Sam Bankman-Fried’s “participation,” according to Bloomberg News, which cited two people familiar with the matter.

Pitched assets including stock-clearing platform Embed and the naming rights to an arena in Miami, the report said.

While FTX has descended into chaos in recent days after a failed takeover by rival Binance, the embattled crypto CEO has stressed that the American branch of FTX is separate from the global brand and in good financial health.

“FTX US, the US based exchange that accepts Americans, was not financially impacted by this shitshow. It’s 100% liquid. Every user could fully withdraw (modulo gas fees etc). Updates on its future coming,” Bankman-Fried wrote in a thread Thursday.

© 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.