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Quick Take

• Rapid Insights provide a deeper analysis of the current crypto landscape in a timely fashion.
• This issue of Rapid Insights summarizes the latest developments surrounding the rumors of FTX’s solvency.
• While FTX has started seeing a backlog of withdrawals, likely due to rumors about its insolvency, it has not paused withdrawals.
• The tumultuous crypto markets and a series of precedents have certainly exacerbated the impacts of such allegations against FTX.
• Ultimately, FTX is being stress-tested in challenging market conditions and the outcome of this test will be a crucial one for the overall crypto markets.

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members of The Block Research.
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The Avalanche Foundation is providing incentives worth $4 million in AVAX tokens for the decentralized trading platform GMX.

The incentives come from Avalanche Rush, an $180 million liquidity incentivization program that aims to increase liquidity and users for decentralized finance (DeFi) applications on its smart contract platform.  

GMX is a decentralized exchange that offers spot and perpetual futures contracts on Avalanche and another scaling protocol, Arbitrum. 

The $4 million in AVAX tokens will be distributed over a multi-month timeframe, as well as with partner platforms building on top of GMX, the Avalanche Foundation said in a statement. Partner platforms include exchanges TraderJoe, YieldYak and Dopex.

GMX utilizes a different token model compared to other DEXs that aims to minimize impermanent loss for liquidity providers, which is a growing concern given that it has caused over $100 million in losses for LPs in October alone.

The caveat with GMX’s model is that instead of impermanent loss, liquidity providers take on the risk of losing capital if traders on GMX are profitable. When traders lose money or are liquidated, this generates fees that are paid out to liquidity providers for taking the other side of the trade. Conversely, if traders make money, liquidity providers are the ones who take the hit.

The incentive program offsets some of the risk associated with providing liquidity on GMX and enables partner protocols to build new types of products on top of the revenue model GMX uses. With $4 million being paid out over the course of a few months, users could be more inclined to provide liquidity on GMX and utilize the new products partner platforms are building.

© 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 Coinmetro has raised 7 million euros ($7 million) in a strategic funding round backed by three angel investors and 100 existing shareholders.

The funding round takes Coinmetro’s valuation to $180 million, a three-fold increase on the company’s valuation of $60 million last year, the company said.

Founded in 2018, Coinmetro is a crypto exchange located in Estonia. It is an EU-licensed exchange and has active regulatory registrations in the U.S., Canada and Australia, according to its website. 

The startup has raised a total of 18 million euros ($18 million) to date, according to Crunchbase. Coinmetro also plans to raise a Series A at the start of next year.

The fresh capital will enable the exchange to scale up operations in the U.S., UK and Europe. Coinmetro will also roll out a series of passive income products.

“We have no shortage of ideas and are looking forward to making them real for our growing community over the months and years to come,” Coinmetro CEO Kevin Murcko said in a statement.

The average check size for a seed and pre-Series A round in the third quarter was $6.5 million, according to data from The Block Research.

Third-quarter blockchain venture deal size from The Block Research

© 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

• NFT marketplaces have been one of the main beneficiaries of the NFT gold rush.
• The golden age of effortless revenue generation has come to an end, as price-undercutting tactics have caused the revenue of NFT marketplaces to evaporate.
• In total, 25.0% of the examined NFT marketplaces already enable users to trade completely free of charge.

This research piece is available exclusively to
members of The Block Research.
You can continue reading
this Research content on The Block Research.

The Department of Justice seized over $3.36 billion worth of bitcoin from a hacker who stole 50,000 bitcoin from Silk Road a decade ago. 

Officials said the action was, at the time, the DOJ’s biggest cryptocurrency seizure ever and remains the second-largest of any kind in its history.  

James Zhong pleaded guilty before a Manhattan court to wire fraud over his hack of 50,676 BTC from the Silk Road back in 2012. The Silk Road was the first major darknet marketplace, allowing merchants to sell often-illegal wares in exchange for bitcoin.  Zhong managed to trick Silk Road’s payments processor into giving him the bitcoin via a range of fake accounts.

“For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” the Justice Department’s announcement said. 

Authorities initially seized the bitcoin as well as bars of precious metals and over $600,000 in cash from Zhong’s home during a raid on November 9, 2021.

Almost a year later, the Justice Department is publicizing that seizure. It was at the time the largest of its kind, eclipsed in February of this year during the arrest of Heather “Razzlekhan” Morgan and Ilya Lichtenstein, who had tried to launder money from a 2016 hack of Bitfinex. 

As a result of the market collapse over the past year, Zhong’s bitcoin today is worth just over $1 billion. 

© 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.

Yi He, the co-founder and chief customer service officer at crypto exchange Binance, has claimed that the company is not in “a war” with rival exchange FTX.

“Recently, the Portfolio Management team at [Binance] Labs decided to sell FTT based on the risk-control metrics we monitored,” Yi He tweeted, adding that the public announcement of such decision reflects that Binance Labs “always respond to what our community asks in a transparent and direct way.”

“The point we’d like to stress is that the decision to hold or sell a token depends on one’s own risk appetite and judgement,” she added. “Our decision to sell FTT is a pure investment-related exit decision, which has nothing to do with “a war” and we have no intention to engage in drama.”

The comments come after Binance CEO Changpeng “CZ” Zhao announced the exchange would start selling its holdings of FTX’s FTT exchange token — which helped spur a surge of stablecoin outflows from CEO Sam Bankman-Fried’s exchange while stoking widespread speculation about the health of both FTX and it’s closely associated principle trading firm Alameda Research.

“A competitor is trying to go after us with false rumors,” Bankman-Fried tweeted. “FTX is fine. Assets are fine. FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be.”

© 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 CEO Sam Bankman-Fried insisted his crypto exchange is “fine” after rival Binance announced it would start selling its holdings of FTX’s FTT token. 

“A competitor is trying to go after us with false rumors,” Bankman-Fried tweeted. “FTX is fine. Assets are fine. FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be.”

On Sunday, Binance CEO Changpeng “CZ” Zhao had said his firm would begin selling off its FTT holdings “due to recent revelations that have came to light.” His announcement came after a Nov. 2 CoinDesk report that a leaked balance sheet from Alameda listed $3.66 billion in “unlocked FTT” and $2.16 billion worth of “FTT collateral.” The leaked balance sheet showed a total of $14.6 billion in assets and some $8 billion in liabilities, which include $7.4 billion worth of loans.

Bankman-Fried finished his four-tweet thread with a barb at Zhao, saying “I’d love it, @cz_binance, if we could work together for the ecosystem.”

© 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.

Neon Labs plans to deploy an Ethereum-based smart contract layer on the Solana blockchain on Dec. 12.

Known as Neon EVM, the solution aims to bring support for Ethereum Virtual Machine (EVM) — a mechanism that will allow developers to write Ethereum applications on top of Solana. Over the last few years,  EVM has become the most widely adopted computing standard for developing smart contracts. 

Neon’s implementation will be a smart contract platform built on top of Solana that lets developers deploy Ethereum-based applications — something that’s not been possible so far on the network. Solana’s existing smart contract framework is not EVM-compatible. Therefore developing Ethereum apps on Solana isn’t possible. Neon wants to change that by adopting the developer tools and compute layer present on Ethereum, thereby reducing friction for Ethereum developers looking to expand to Solana.

“Ethereum-based projects can, for the first time, tap into the previously inaccessible audience and liquidity of Solana without needing to rewrite their code in Rust,” Marina Guryeva, CEO and Founder of Neon Labs, said. As a result, users will now get to enjoy enhanced user experiences on Solana without losing out on Ethereum’s battle-tested dApps,” they added.

Notable Ethereum-based projects — including Aave, Curve, and Sobal — are gearing up for launch on Neon EVM once its mainnet launch goes live.  

Last year, Neon Labs raised $40 million from Jump Capital, IDEO CoLab Ventures and Solana Capital, amongst others.

© 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 has recorded a surge in stablecoin outflows amid growing, unsubstantiated fears surrounding the crypto exchange’s financials.

In the last seven days, more than $451 million in stablecoins has flown out of the exchange, according to Nansen data, caused by a flurry of large withdrawals from users. Nansen tracks wallets that it estimates belong to FTX based on on-chain data.

FTX is under pressure following a leaked portion of balance sheet details from its sister trading firm Alameda Research. Changpeng Zhao, the CEO of rival exchange Binance, upped the stakes over the weekend as he came out saying his firm was planning to liquidate a large sum of FTX’s stablecoin.

“In crypto when shit gets stress tested, always better being safe rather than sorry even if super low chance,” The Block’s VP of research Larry Cermak tweeted today, referring to why traders have been pulling their funds from the exchange. He added in a separate tweet that, “the chance of FTX insolvency is near 0%.”

How the situation developed

FTX’s balance sheet numbers, first reported by CoinDesk, stated that Alameda had a total of $14.6 billion in assets and some $8 billion in liabilities, including $7.4 billion worth of loans, as of June 2022.  

Among its assets, Alameda listed $3.66 billion in “unlocked FTT,” the native token of crypto exchange FTX, and another $2.16 billion worth of “FTT collateral.”  The feared insolvency claims stem from the fact that a significant portion of Alameda’s asset holdings were in FTT, a token created by the firm, rather than more traditional assets like fiat currencies. 

Alameda’s CEO Caroline Ellison later clarified that the leaked balance sheet represented a subset of holdings, and that the firm had an additional $10 billion in assets. Still, it wasn’t enough to quell fears and prevent a market response. As details of the balance sheet began circulating, investor funds started to move funds away from the exchange, on-chain data shows. 

Just today, wallets labeled as those belonging to FTX, saw large fund transfers to other parties, showing the exchange withdrawals. Those making these withdrawals included Jump Trading, a trading firm with close ties to FTX, that withdrew about 40.4 million USDC, according to on-chain analytics and security firm PeckShield. 

The situation for Alameda and FTX exacerbated when Changpeng Zhao, the CEO of crypto exchange Binance (also a competitor to FTX), came out saying his firm was planning to liquidate a large sum of FTT tokens on the market.

Binance had received about $2.1 billion worth of the BUSD stablecoin and FTT “[a]s part of Binance’s exit from FTX equity last year.” But Zhao said he wanted to sell more than $500 million worth of FTT, a step that could potentially drive down FTT’s price and eat into the value of the exchange’s net assets. This accelerated further worries that have ensued in the lead up to panicky FTX-related withdrawals.

Now investors are betting against the FTT token. The open interest on FTT-related futures and perpetual derivatives has reached more than$ 215 million, double from yesterday and a 12-month high. Open interest in a derivatives market refers to the total value of unsettled trading contracts. 

Also, the funding rate on FTT perpetual trading is negative, which combined with high open interest, indicates that a large sum of traders’ money is a short on FTT token, meaning traders are betting that FTT token will go down in price. Currently, FTT trades at $22.57, and is trading down 2% on the day, per CoinGecko.

© 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 European Union’s central bank digital currency (CBDC) may have transaction and store-of-value limits for individuals, Fabio Panetta, an executive board member of the European Central Bank (ECB), suggested at the “Towards a legislative framework enabling a digital euro” conference hosted by the European Commission.

Exact limits are not set in stone — as the digital euro project is still in an investigation phase within the ECB — but Panetta mentioned €3,000 as an example store-of-value limit and 1,000 transactions as a monthly limit.

“If we give access to a means of payment, which is relatively limited, there are no transaction costs because you only need to have a smartphone,” Panetta said, explaining: “There will be risks that people could use this possibility to move, for example, their deposits of other banks or their money out of financial intermediates.” 

This would be a threat to financial stability in times of crisis, he added — which is why the ECB is looking to introduce transaction limits for the potential CBDC. 

“Digital euro would be an additional option for retail payment — not a challenge to the function of the financial system,” Panetta said, highlighting that the CBDC is not meant to replace cash.

The ECB is expected to decide whether to move forward with a realization phase by September 2023. With a legislative proposal expected from the European Commission, the continuation of the European CBDC project is becoming more likely. 

© 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.