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Someone has taken advantage of crypto exchange FTX’s willingness to pay blockchain transaction fees on its users’ behalf. They did so to mint more than $70,000 of XEN tokens, leaving the exchange with a $100,000 bill in subsidized transaction fees, according to a report from a security analyst at X-explore.

This is a rare case. It only happened because a recently launched token, called XEN, is free to mint as long as the underlying blockchain’s transaction fees are paid. Rather than pay for the transaction fees themselves, a user managed to trick FTX’s systems to do so on their behalf.

FTX processes ETH withdrawals for free and pays its users’ transaction fee for them from its own hot wallet address. This lets customers send ether and other tokens to their wallets without worrying about fees. 

The user made this happen by withdrawing funds to call a smart contract function, instead of just to a normal crypto address. This contract was designed in a way to loop the minting process and transfer the minted tokens to the said user’s address, X-Explore told The Block. 

The person was able to carry out the mint primarily because FTX allows users to use up 500,000 gas units —a metric used for withdrawal fees —  for withdrawal requests on Ethereum. Normally simple ether transfers only consume 21,000 gas units, but more complex on-chain activities like calling smart contract functions will need additional fees, which were covered by FTX in this incident. FTX does not impose a gas limit on transactions while also not charging a withdrawal fee.

The exchange failed to recognize that it was minting XEN tokens on behalf of the user, mistaking them for simple withdrawal requests, per analysts. 

Blockchain security firm called BlockSec corroborated X-Explore’s findings. Its independent analysis showed that FTX exchange paid more than 100 ether ($120,000) for the user’s minting of XEN tokens, BlocSec told The Block.

We have reached out to FTX and will update this article should we hear back.

© 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.

An investigation of loans made by troubled South Asian crypto exchange Zipmex to Babel Finance found that no individual had an “overriding influence” over the company’s decisions, which may provide cover for embattled chief executive Marcus Lim after some investors called for his resignation.

Law firm Morgan Lewis Stamford conducted an independent review and found that Zipmex’s risk management and credit risk committees collectively made its capital deployment decisions, according to an internal email obtained by The Block. The committees included CEO Marcus Lim, co-founder of Zipmex’s Thailand unit Akalarp Yimwilai, chief commercial officer and chief of staff Jonathan Low, CFO Nicolas Keravec and chief legal officer Pav Gill.

The Block has also obtained a Lim affidavit related to Zipmex’s restructuring filed today. The filing in the Singapore High Court notes that the review from Morgan Lewis Stamford – which is also handling Zipmex’s restructuring – didn’t find “evidence that at any material time, there had been a breach of any internal governance, risk and/or compliance procedures.”

The legal review and affidavit come on the heels of news that Zipmex insiders had reportedly blamed Lim for the company’s $48 million exposure to troubled lender Babel Finance and other potential losses and sought his resignation.

“While it is heartening to find that there was no wrongdoing by anyone from Zipmex, this has been a learning process for us, and we will come out stronger for it,” Lim told The Block.

When asked how Morgan Lewis Stamford review is independent since the law firm is also Zipmex’s restructuring lawyer in Singapore, Lim told The Block in a separate message that it’s an “independent of employee interest” and presented its review to Zipmex.

Lim had also been a target of Zipmex’s potential new shareholder who asked him to forfeit his shares. At the time, Lim said he and his team continue to work towards bringing in new investments to make customers whole and that negotiations with various parties were entering a critical phase.

The affidavit further shows that Babel Finance was Zipmex’s deployment partner since November 2020. Zipmex had previously deployed loans to Babel on nearly 100 separate occasions and all loans were duly repaid with accrued interest, per the affidavit. Zipmex kept conducting ongoing due diligence on Babel, with the latest being in May 2022, according to the affidavit. Babel also repaid 2 million USDT to Zipmex in June 2022 due to its recovery efforts, per the email obtained by The Block.

Babel halted client withdrawals in June and decided to undergo restructuring in July. At that time, Zipmex understood that it would be difficult to recover funds from Babel and therefore decided to pursue another avenues, per the email and the affidavit.

Zipmex halted client withdrawals in July and has been looking to raise funds from investors since then. Zipmex has until Dec. 2 to sort out its financial problems, having received a three-month moratorium extension from the Singapore High Court in August.

Lim today said that Zipmex has been executing a recovery plan to ensure that its customers can withdraw their assets and will have updates on this in due course.

© 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.

Hidden Road, which boasts backers like Castle Island Ventures and Citadel Securities, has launched an over-the-counter prime brokerage for digital assets. 

The OTC offering will be available to U.S. and international counterparties, and aims to further institutional adoption of digital assets, according to a release. The offering will give counterparties ownership and control over their execution technology, liquidity, and custodian choice for fiat and digital assets.

Hidden Road identified a demand for this “real prime brokerage solution” for OTC trading from working with its institutional counterparts, Global Head of Business Development Mike Higgins said. “The market was in need of a truly conflict-free prime broker, one without a proprietary trading desk, OTC liquidity desk or market making operation,” he said.

The firm provides a credit network and a prime brokerage service for digital assets, encompassing margin netting, financing of trading and centralized market access to leading global OTC liquidity providers, Higgins added. 

Initial liquidity providers on the platform include firms like OSL, Virtue, GSR and Wintermute. Independent software vendors include 4OTC, CoinRoutes, Elwood Tech, Gold-i, Reactive, Talos. Finally, venues include 24x, Crossover Markets, Cypator, Enclave Markets, Finery Markets, and Spotex.

Hidden Road announced a $50 million Series A round led by Castle Island Ventures in July. Citadel Securities, FTX Ventures, Uncorrelated Ventures, Greycroft, XBTO Humla Ventures, Wintermute, SLN Capital, Profluent Trading, and Coinbase Ventures, among others, also joined the round.

© 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.

A formal regulatory process for digital assets is “needed now,” Sen. John Hickenlooper, D-Colo., wrote in a letter to Securities and Exchange Commission Chair Gary Gensler this week.

“Digital asset markets do not have a coordinated regulatory framework. This creates uneven enforcement, and deprives investors of a clear understanding of how they are protected from fraud, manipulation and abuse,” Hickenlooper wrote on Thursday. 

Hickenlooper is calling on Gensler to “engage” by collecting public input and putting forward new rules to determine which crypto tokens are securities or commodities. Clearer regulation will protect investors who “may not be fully aware of the risks associated with digital asset investments,” the Democratic lawmaker noted. 

“Given the complexity of these issues, and recognizing that some digital assets are securities, others may be commodities, and others may subject to a completely different regulatory regime, a formal regulatory process is needed now,” Hickenlooper wrote. When he was governor, Hickenlooper created the Colorado Council for the Advancement of Blockchain Technology Use.

Hickenlooper requested the commission clarify which types of digital assets are securities, determine how to issue and list digital securities and determine which disclosures are necessary to inform investors. Hickenlooper also encouraged the commission to create a registration regime for digital asset security trading platforms and set rules on how trading and custody of digital assets should be conducted.

© 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 prices plunged following hot U.S. inflation numbers on Thursday. 

BTC was trading at $18,327 on Coinbase — down roughly 3.8% over the past 24 hours, per data from the exchange. 

ETH losses over the past 24 hours were even greater — dropping 6.2% to $1,213 — according to Coinbase data.

Thursday’s downturn followed hotter-than-expected inflation figures from the United States. Headline inflation was up 0.4% month-on-month and 8.2% year-on-year. Meanwhile, core inflation rose to 6.6% — above estimates of 6.4% — and is at its highest point since 1982.

Altcoins, which suffered large losses over the past 24 hours, were again hit hard. ADA fell 7.4% while SOL lost over 8.5%, according to data from CoinGecko.

The losses in crypto markets track traditional markets, where S&P 500 futures turned red — down 1.88% shortly before the open. Nasdaq 100 futures lost 2.89%.

Word on the street 

When inflation is above expectations, BTC typically falls an average of 4% in the 30 minutes following the release, QCP Capital said before the data dropped. With BTC currently down approximately 2.2% since the data release, there could be more room to go, based on this analysis.

Markets must now contend with the deafening reality that further interest rate hikes from the Fed may follow today’s news. A hotter-than-expected CPI reading would put a nail in the coffin to seal a 75bps interest rate hike from the Fed at the start of next month, Matt Well, global head of market research at Forex.com, explained to The Block earlier today.

The CME’s FedWatch tool shows that traders are now pricing in a 90% or more probability of yet another 75 basis points interest-rate increase from the Fed in three weeks’ time, Weller noted, following the release. Some traders are even pricing in an outside chance of a full 100 basis point rate hike, he said.

Now, pressure is expected to remain heavy on price action with higher-than-expected inflation, Urs Bernegger, c0-head of markets and investment solutions at SEBA bank, told The Block. 

© 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.

Sir Anthony Hopkins is launching an NFT collection on Thursday which promises randomly selected holders Zoom meetings with the two-time Oscar winning actor.

Perhaps best known for his role as Hannibal Lecter in the film Silence of the Lambs, 84-year-old Hopkins’ collection, The Eternal, is currently emblazoned on the homepage of OpenSea ahead of its mint later today.

The 1,000-strong collection “immortalizes Sir Anthony Hopkins’ diverse archetypal interpretations of The Eternal: The Jester, The Lover, The Rebel, The Hero, The Ruler, The Sage, The Magician, The Giver, The Explorer, and The Creator,” the description reads.

The collection is promising some interesting utility for the select few. Holders of ten unique signature animation NFTs will get a discussion with the knighted actor via Zoom and an autographed Dreamscapes Art Book, featuring hundreds of full-color images of paintings and drawings by Hopkins himself.

Five randomly selected holders owning one the remaining 990 unique one-of-a-kind images collections will get a group Zoom call with Hopkins.

One holder will snag the top prize: a “once-in-a-lifetime” one-on-one Zoom call with Hopkins. The conversation will be recorded and posted on his social media.

The NFTs will set buyers back 0.25 ETH, or around $300 at today’s prices. There will be a limit of three per wallet. 

Hopkins joins a rash of celebs toying with their own NFT projects. Among others, earlier this year, Paris Hilton partnered with metaverse platform The Sandbox to launch NFTs and hold virtual parties. Rapper Snoop Dogg also announced plans to turn Death Row Records, a record label that he acquired from Blackstone-controlled MNRK Music Group, into an “NFT label.”

Nevertheless, The Block suggests winners enjoy the Zoom call with some fava beans and a nice Chianti.

© 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.

Uniswap Labs announced it succeeded in raising $165 million in the second round of its funding campaign. The Series B funding was led by Polychain Capital — with participation from a16z crypto, Paradigm, SV Angel and Variant.

The company behind Uniswap, the leading decentralized exchange, is now valued at $1.66 billion.

“Now, Uniswap Labs is bringing the powerful simplicity and security that has defined the Uniswap Protocol to even more people across the world,” Hayden Adams, founder of Uniswap, shared in a blog post on the Uniswap website.

The decentralized exchange was launched in 2018 and raised $11 million in its first round of funding in 2020. The DEX has processed $1.2 trillion in trading volume, to date. 

© 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.

U.S. inflation was hotter-than-expected in September, up 0.4% month-on-month, according to the latest CPI data.

As well as this increase from August, the year-on-year read came in at 8.2%. Both of these figures were above Bloomberg estimates of 0.2% month-on-month and 8.1% year-on-year.

source: bls.gov/cpi

Cryptocurrencies were in the red across the board on Thursday ahead of this data release, with prices plunging following it. 

When inflation comes in higher than expected, bitcoin typically falls an average of 4% in the 30 minutes following the release, according to QCP Capital. “This includes a 5% fall last month, and up to 7% in April this year.”

JPMorgan’s Marko Kolanovic expects a 75 basis point hike each from the Fed, ECB, and Bank of England going forward. Today’s inflation report will do nothing to alleviate interest rate hike expectations.

© 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 rebrand of derivatives exchange BitMEX has continued with the addition of 14 new coins to its platform over the last four weeks. This comes as it pivots to compete with more traditional exchanges.

The new coins added since September are $USDC, $TRON, $SOL, $DAI, $FTM, $BUSD, $AAVE, $SHIB, $WTC, $CRO, $MANA, $FTT, $SAND and $OKB. It follows the company’s first foray into non-crypto products in August, when it launched FX perpetual swap contracts, allowing users to trade more than 20 contracts tied to foreign currencies.

“As more investors and traders enter the space and strategies become increasingly mature, those of us who provide products and services to power that investment must be continually looking to adapt to emerging trends and needs,” said Alex Höptner, CEO of BitMEX, in a statement.  

Höptner added that it was a strategic shift to move beyond derivatives and accommodate market demands.

“We are now focusing on our ‘beyond derivatives’ transformation strategy which includes a range of new products and updates which allow our users to do more with their crypto as we continue to facilitate the emergence of digital assets in the mainstream,” he said.

Höptner joined BitMEX as CEO in late 2020, months after the companies’ founders, Arthur Hayes, Ben Delo and Samuel Reed, were charged with one count of violating the Bank Secrecy Act and a second charge of conspiring to do so.

All thee avoided jail time earlier this year after pleading guilty. Hayes was handed a sentence of six months of home detention as part of a two-year probationary period. Delo and Reed recieved 30 and 18 months probabtion, respectively.

© 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.

NFT startup Otterspace has raised $3.7 million to build a protocol and application that it hopes can reduce financialization in web3. 

The seed round was co-led by venture firms Cherry Crypto and Inflection, with Bessemer Venture Partners and Coinbase Ventures participating. Otterspace was valued at $20 million after the round closed in May.

The startup was founded in February by ex-Soundcloud employees Rahul Rumalla and Emily Furlong, along with former venture capital investor Ben Dobbrick, previously of Btov Partners and Paua Ventures — both of which also took part in the seed funding round. 

Otterspace aims to use NFTs that are earned rather than bought to reward certain behavior and recognize participation in a decentralized autonomous organization (DAOs). 

Once contributors have completed certain tasks or behaviors set by the DAO through the application, a contributor earns one of these nontransferable NFT badges which entitle them to a host of benefits.

“These badges allow you to create teams and identify who is a core contributor and automate permissions to a space on Discord or Telegram,” explained Dobbrick in an interview with The Block.” You can use it to vote on governance or you can just use it as a reputation system to get a payment stream like a normal regular monthly salary.”

The DAO of DeFi newsletter Bankless currently uses Otterspace’s NFTs to assign roles and relevant compensation. 

Why do we need to ‘definancialize web3’? 

DAOs are built on the promise of decentralizing the traditional concept of shareholder voting. In this decentralized structure, investors are given the ability to vote on proposals ranging from a protocol’s marketing efforts to new products. Investors are able to vote by using the DAO’s native governance token.

Currently in DAOs, those that hold the money hold the power. DAOs are often built upon the financial incentive of access to tokens and the ability to govern the organization through such tokens, says Dobbrick. The more tokens that you amass, the bigger sway you have over the outcome of governance proposals. 

“We now see that crypto is overly financialized — even hyper-financialized — and specifically in DAOs you see that as people vote with these tokens holdings,” said Dobbrick. “This has a bunch of problems in that whales have a disproportionate share in the governance process and in this way, contributors with smaller holding have less of a say.”

Dobbrick believes that Otterspace’s NFTs badges offer the alternative to this by offering a gateway into governance that isn’t dependent on one’s holdings. This not only gives influencing power to those that otherwise could not afford it but also engages new DAO members who may only hold a small number of tokens. Importantly these cannot be bought or sold thanks to the specific interface — EIP-4973 — these tokens are built on. 

DAOs and beyond

Including Bankless, Otterspace is live in private beta with 15 other DAOs. 

Dobbrick says that it’s not only DAOs that are interested in their services. He cites the education platform Token Engineering Academy as another that is using its services via API to assign students into batches. He expects companies like this also to be interested in using Otterspace along with decentralized entities. 

Built on the Layer 2 solution Optimism, Otterspace is also set to soon launch on the Ethereum mainnet. Through this round, Dobbrick says that the startup has at least 29 months of runway. 

Companies such as Otterspace in the NFT and gaming space accounted for 35% of seed and pre-series A deals last quarter according to 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.