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Three Arrows Capital (3AC) borrowed and repaid more than $2 billion from crypto services firmBlockchain.com over the span of almost four years before its bankruptcy, documents seen by The Block show.

The details appear in an affidavit submitted by Blockchain.com’s Chief Strategy Officer Charles McGarraugh. The affidavit is part of a 1,157-page legal document uploaded Monday by Teneo, the firm appointed last month by a court in the British Virgin Islands to oversee 3AC’s liquidation. The document — which was separately obtained by The Block — was later removed from the 3AC creditors’ site.

Blockchain.com’s CEO Peter Smith previously said in a shareholder letter that 3AC had borrowed and repaid more than $700 million in crypto over that four-year period, according to a report from CoinDesk. As it turns out, the $700 million describes the largest amount of loans 3AC had out at any single time, whereas the $2 billion in crypto and fiat currency reflects the total amount.

“Blockchain.com was right to be deeply concerned about Three Arrows Capital months ago,” a Blockchain.com spokesperson told The Block. “Three Arrows Capital defrauded not only Blockchain.com, but the entire crypto industry. We intend to hold them accountable to the fullest extent of the law.”

The affidavit shows that Blockchain.com and 3AC signed a master loan agreement (MLA) effective June 13, 2019. Blockchain.com sent 3AC a demand notice for its outstanding loans on June 14, and 3AC defaulted on its payments after failing to meet a June 16 deadline.

Blockchain.com did not disclose the total amount 3AC still owes in the affidavit, but CoinDesk reported on July 8 that the company was facing losses of $270 million due to its 3AC lending. According to the affidavit, 3AC’s debt is mainly made up of “open loans” that do not have a maturity date under the agreement.

In the affidavit, McGarraugh raised doubts about the accuracy of 3AC’s disclosed net asset value (NAV) prior to defaulting on its loan payments. According to the companies’ loan agreement, 3AC had to provide reports showing this metric each month.

The last NAV report 3AC provided to Blockchain.com was a supplemental statement on May 13 showing a NAV of $2.387 billion. The disclosure followed a May 12 call where a Blockchain.com representative “expressed concern” to 3AC founder Kyle Davies about the hedge fund’s Luna position, as the token collapsed that day.

“For the reasons set out below, I am now doubtful that this NAV statement was accurate,” McGarraugh wrote, documenting further communications between Blockchain.com and3AC in the following weeks.

According to the affidavit, 3AC asked Blockchain.com to continue the open loans it had with the company, and “refrain from calling them or demanding repayment.” According to the information in the document, Davies told a representative that 3AC “would boycott Blockchain.com’s business if Blockchain.com recalled any loans.”

On May 21, McGarraugh had a call with Davies regarding 3AC’s financial status. He said Davies told him the hedge fund had lost about $200 million on Luna, and that was already accounted for in the company’s disclosed NAV.

“Relying on Mr. Davies’ representations on this call, I calculated that 3AC had only (1) USD $1.5 billion of directional exposure and (2) USD $2 billion borrowed, so that even in a highly adverse scenario, if the markets dropped 33% and all of their borrowing based trades went against them by 20%, they would still only experience roughly USD $900 million in losses,” the affidavit said. “Against a NAV of USD $2.3 billion, even if some of their NAV was illiquid, they should have had no trouble closing out and paying Blockchain.com and their other creditors on demand (since all our loans could be called on demand).”

McGarraugh also wrote in the affidavit that 3AC was required to notify Blockchain.com if its leverage exceeded 1.5x or had trading losses equal to or above 4% of its equity.

“I believe that 3AC has violated these covenants,” he wrote.

The affidavit mentions that while 3AC had made partial loan repayments to Blockchain.com, the unpaid amounts are “substantial.”

An inquiry to 3AC’s legal team was not returned by press time.

© 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.

Sunnybay.eth, a pseudonymous Ethereum Name Service (ENS) collector, has purchased sony.eth for 48 ETH (72,000), according to data from OpenSea.

The purchase came only six minutes after sunnybay made the 48 ETH offer for the domain name, according to on-chain data. Sunnybay also owns several other “brand ENS” including ipad.eth and coke.eth.

ENS domains are a type of human-readable crypto addresses that are easier to read than the default alphanumeric blockchain wallet addresses. They make sending and receiving tokens easier, especially for people who might struggle with the normal blockchain address.

These ENS domain names are non-fungible tokens (NFTs). As such, owners can sell or transfer them on NFT marketplaces like OpenSea.

The sony.eth sale for $72,000 is the latest example of the growing appeal for ENS domain names. Domain names with three digits and four digits have become popular in recent times given their relative scarcity.

There are only 1,000 three-digit ENS, from 000 to 999. Conversely, there are 10,000 four-digit ENS names, from 0000 to 9999. The total supply for the two categories makes them similar to typical NFT collections.

The ENS domain 000.eth sold for 300 ETH ($315,000 at the time) earlier in July. The sale was the second-highest purchase for an Ethereum Name Service domain.

Apart from three-digit and four-digit names, Ethereum Name Service domains based on popular brands are also expected to become premium NFTs. This is based on the expectation that the companies that own such brands will want to acquire them in the future. There is currently a 1 million USD Coin ($1 million) offer on amazon.eth.

© 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.

Meta is partnering with digital fashion startup DressX to provide new avatar fashion looks on Meta’s Avatar Store.

DressX outfits will be available starting July 19, and users can purchase and wear them on avatars across Meta platforms, including Messenger, Facebook, and Instagram and VR headset Quest. 

The startup is based in Los Angeles and launched in 2020 with a mission to offer digital-only collections from brands and 3D designers. According to its Crunchbase profile, the company has raised $3.3 million in funding and was the first digital fashion brand to launch a collection on Roblox. It has also previously worked with H&M to launch virtual fashion for the brand and was a finalist for LVMH’s 2022 Innovation Award.

Most recently, the brand worked with Jason Wu to create and auction off a digital version of Michelle Obama’s 2009 Inaugural Ball gown. 

Fashion and luxury brands are experimenting with ways to increase their presence in virtual worlds, in order to get a share of what analysts at Morgan Stanley have predicted to be a $50 billion market for luxury brands. Digital fashion creators and enthusiasts say that it provides a form of self-expression and individuality that otherwise gets lost in online communication. 

DressX joins a list of other big-name brands that have added virtual clothes in Meta’s marketplace, including Balenciaga, Prada, and Thom Browne, as The Block covered last month.

Outfits cost anywhere between $2.99 to $8.99. The marketplace, which was first introduced in select countries including Canada, the US, Mexico, and Thailand, will be introduced in other countries in the future. 

© 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.

After a mostly positive start to the week of trading, bitcoin mining stock continued in an upward direction on Tuesday, as bitcoin prices soared past $23,000.

As of press time, bitcoin’s price was around $23,300, according to TradingView.

Marathon’s stock shot up 32.17%, a day after the company announced that it entered into an agreement with a hosting provider to secure an additional 200 megawatts in power capacity.

TeraWulf went up 18.92%, followed by Stronghold Digital Mining (+18.89%) and Bit Digital (+16.18%).

Here’s how crypto mining companies performed on Tuesday, July 19:

© 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 Securities and Exchange Commission’s work on crypto was the central area of concern during a hearing before Congress earlier today. 

Gurbir Grewal, the director of the SEC’s division of enforcement, testified before the investor protection subcommittee of the House Financial Services Committee. 

The SEC’s enforcement work in crypto was central to the subcommittee’s questions. Chair Brad Sherman and Ranking Member Bill Huizenga both centered their remarks on the subject, as did many of their colleagues. [link to earlier story]

Full committee Chair Maxine Waters even stopped by to highlight damage to ordinary Americans’ savings “between last year’s ‘meme stock’ events, the implosion of SPACs, and this year’s catastrophic crypto crash.”

But as to most direct questions, Grewal leaned on longstanding SEC policy against commenting on much of anything. “I can’t talk about what matters we’re looking at and not looking at,” was one response from the director.

The SEC has recently expanded its crypto team in preparation for more enforcement, an event that set the backdrop for the focus on crypto. It was not lost on members of the subcommittee that, very possibly due to media dynamics, crypto had seemingly upstaged such concerns as ESG reporting and tightened insider trading, which had been at the core of the Biden administration’s agenda for the regulator. 

Congress was dissatisfied with the SEC’s enforcement work in crypto, though for inverse reasons. Democrats indicated more support for expanded enforcement against crypto firms. Sherman, a longstanding crypto critic, was at the vanguard of this, pushing for more SEC action against crypto exchanges themselves.

“If XRP is a security, then every exchange that handles XRP is a securities exchange. And the major exchanges have recognized that and delisted XRP. Which is virtually a confession that what they were doing last year was illegal,” Sherman told The Block after the hearing.

Many major US exchanges delisted the token in the month after the SEC filed an enforcement action against Ripple in December 2020. 

Jim Himes noted increasing interest in crypto enforcement as well. Noting “the list of names — Tether, Voyager, Celsius etc. etc. — where we’ve seen really really substantial either declines, bankruptcies or questions around fraud,” Himes asked Grewal: 

“What more does the SEC need in this, maybe, pause in excitement around cryptocurrency?”

In keeping with a traditional hostility towards executive agencies, Republicans of the committee were less interested in seeing more enforcement from the SEC. “They’re making it up as they go along, pretty clearly,” Huizenga told The Block of the SEC’s enforcement strategy. He further said it seemed Gensler didn’t seem to be communicating priorities to Gurbir. 

“While the commission does not intend to provide any clarity surrounding crypto assets, they intend to increase enforcement,” Huizenga summarized during the hearing. 

Tom Emmer, a member of the full committee who joined the proceedings, railed against “Gensler’s political regime at the SEC.” He highlighted letters that enforcement had sent to crypto exchanges, responses to which were, according to the congressman, less than voluntary. 

 “It seems clear to everyone except maybe those at the SEC that the SEC is not regulating in good faith,” Emmer continued. ”It can be seen most clearly in the digital asset industry.”

At the same time, it is only since the confirmation of Gary Gensler that the crypto industry began clamoring for a registration regime with the Commodity Futures Trading Commission for exchanges. 

© 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 Federal Bureau of Investigation has identified 244 victims in various crypto-related cyber frauds, with an estimated loss of $42.7 million, according to a document published on July 18.

The Bureau is now warning investors and institutions about fraudulent cryptocurrency investment applications or “apps” that claim to offer cryptocurrency investment services. The fraudsters encourage investors to download mobile apps with names and logos of other legitimate financial institutions.

Between December 2021 and May 2022, cybercriminals pretending to be legitimate businesses have defrauded at least 28 victims for approximately $3.7 million worth of assets.

“The cyber criminals convinced victims to download an app that used the name and logo of an actual US financial institution and deposit cryptocurrency into wallets associated with the victims’ accounts on the app,” the document reads. “When 13 of the 28 victims attempted to withdraw funds from the app, they received an email stating they had to pay taxes on their investments before making withdrawals. After paying the supposed tax, the victims remained unable to withdraw funds.”

Two other similar frauds are highlighted in the document. 

The FBI is recommending that investors and institutions take proactive measures to prevent these frauds.

Some of these steps include: warning customers about the activity and steps they can take to report it, conducting online searches for your company’s name and logo to see if it’s being used elsewhere, being wary of unsolicited requests to download apps, and verifying an individual’s identity before giving them personal information or relying on their investment advice. 

© 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 emergency hearing took place Tuesday in Voyager’s Chapter 11 proceedings, and Judge Michael Wiles made it clear the firm will have to demonstrate significant need in its interim motions.

Voyager filed for Chapter 11 protection earlier this month after suspending user activity on July 1. According to court filings and statements from the firm, it has $1.3 billion in crypto on its platform, with over $350 million in cash held at a For Benefit of Customers (FBO) account at Metropolitan Commercial Bank, in addition to a more than $650 million claim against embattled crypto hedge fund Three Arrows Capital.

Chapter 11 proceedings allow a firm to remain operational as it restructures its business to pay creditors. But reorganizing a business is a process, and keeping the lights does not always allow the luxury of time to implement a new court-ordered business plan. To mitigate this, the court will hear arguments related to interim motions granting relief for specific purposes, essentially granting the business the right to pay an expense. 

Voyager made such a request today ahead of its next scheduled hearing on August 4. That August 4 hearing will likely discern whether Voyager is cleared to withdraw funds from the MC FBO account to honor customer withdrawals. But today, the court dealt with a more immediate concern – whether the firm could honor its Brex corporate card payments.

Historically, the firm has paid about $300,000 a month on company cards, according to court documents. In its bankruptcy documents, the firm reported five corporate cards, but counsel said today that new information has come to light. There are 24 cards: 9 physical cards, 14 virtual cards and a single card used for travel. Altogether they amount to a balance of $76,000, a smaller sum in the context of larger bankruptcy proceedings.

Shortly after first-day proceedings, Brex informed Voyager it’d be shutting off the corporate cards due to nonpayment, but the payments firm agreed to reinstate the cards if the balance was paid. 

Counsel for Voyager, Christine Okike of Kirkland & Ellis, argued the firm needs access to the cards in order to pay critical vendors.

But Judge Wiles pushed back. In his view, Voyager failed to assess other options to pay critical vendors or open other lines of credit. The Office of the US Trustee, which appoints a creditor committee to oversee the restructuring, did not take issue with the request given how small the sum is in the scheme of the proceedings.

For that reason, Wiles granted the motion, though he clarified that at this stage in the case, motions for relief are granted to prevent immediate and irreparable harm. In the future, he said he expects a greater demonstration of need. 

“I’m tempted to say no just because the motion doesn’t come close to satisfying the standard in many respects. Instead of showing actual irreparable harm, it just posits that if you couldn’t get something that you haven’t even tried to get, then you might have a vague disruption that you can’t put your finger on. That’s not good enough, and in the future, I expect a more clear showing before I authorize anything like this. In the absence of objection I’ll approve this, but with great misgivings for the reasons I’ve stated.”

Eventually, the committee of creditors will be consulted during requests for relief. The committee is appointed by the US Trustee, and in this case, may be formed in “the very near future,” according to US Trustee attorney Richard Morris. Morris advised the court and parties to look out for that notice. 

© 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 staking protocol Figment says it will support maximal extractable value (MEV) when Ethereum is fully up and running as a proof-of-stake network, the company announced on Tuesday. 

MEV refers to the maximum value that miners or validators can extract from a transaction block based on their ability to determine the order of transactions on the blockchain. This value is in excess of the standard block reward and gas fees. 

Explaining its MEV strategy, Figment stated that it would prioritize fair MEV extraction. The crypto staking firm defined fair MEV as one that ensured increased staking on the network and maximum reward for clients while guarding against centralization risks. 

“MEV is inevitable, but there are ways to democratize access to the value that is extracted. The most obvious path towards democratization is through sharing rewards with our delegators, which we intend to do on every network where we participate in MEV in order to create more secure and efficient blockchains,” Figment stated in the announcement. 

According to Tuesday’s announcement, Figment says it will leverage Flashbot’s MEV-Boost solution for its validator list on Ethereum 2.0. The decision to use the Flashbot tool is to ensure a higher reward rate for its clients. 

As a staking service, Figment locks up PoS crypto on behalf of its users (delegators) to earn yields in the form of staking rewards, including gains from MEV. The protocol runs a set of validators that process transactions on PoS blockchains. Figment shares these staking rewards with the validators and delegators. 

Figment closed a $50 million Series B funding round in August 2021, as reported by The Block. The company is also one of the backers of institutional staking platform Alluvial. 

Why does MEV exist? 

MEV comes about as a result of people looking to exploit profit-making opportunities that can arise in the decentralized finance space. These opportunities include potential arbitrage when someone is doing a high-value token swap.  

These opportunistic profiteering endeavours require faster than normal execution. As such, people looking to make these trades pay higher fees to miners and validators to place their transactions before others. 

MEV is also exploited for transactions like sandwich attacks and frontrunning. The latter involves the exploiter forcing their transaction to go through before a high-value transaction to earn profit. The former is a special type of frontrunning where the attacker sandwiches the target transaction in between two of their trades to make a profit. 

© 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.

THORChain, a cross-chain decentralized exchange, has begun the process to phase out the use of rune tokens issued on Ethereum and BNB Chain. THORChain is its own blockchain that allows users to swap assets across seven blockchains.

A Monday post from the THORChain team informed the community of its plans to phase out two rune-pegged tokens, referred to as ETH.RUNE and BNB.RUNE. These are variants of THORChain’s native asset rune, that can be issued on Ethereum and BNB Chain.

Earlier this year, THORchain found these tokens to be vulnerable to exploits, prompting the team to remove their use. The team decided it will restrict the use of rune tokens on its mainnet, which was launched in June.

With the objective of retiring these above tokens, THORChain activated what it called a kill switch at block #6500000.

This is a network function that will slowly reduce the 1:1 redemption rate of ETH.RUNE and BNB.RUNE against native rune tokens over the next 12 months. Following the kill switch, investors can still swap to rune but at a diminishing redemption rate.

© 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.

It’s no secret that crypto industry money has poured into Washington, DC, over the past year. 

While many firms have built up in-house lobbying and government relations teams, a handful of pure lobbying firms have become go-tos for private contracts.

Here are a few of the most common, based on publicly available lobbying disclosures and The Block’s subsequent analysis. It’s important to note that the Lobbying Disclosure Act classifies a relatively small roster of activities as lobbying. Consequently, the dollar amounts here are not necessarily the total size of the contracts involved.

Conaway Graves Group

Key stats: 

• Total receipts in Q1 2022: $180,000
• Total receipts from crypto clients in Q1 2022: $60,000
• Major crypto clients: FTX, ADAM, Ripple Labs

Mike Conaway, former leading Republican on the House Agriculture Committee, and his deputy chief of staff Scott Graves launched the Conaway Graves Group after leaving Congress at the beginning of 2021. 

Within months, the firm had a contract to lobby on behalf of Ripple Labs. In March of 2022, after the 1-year cooling-off period on Conaway’s lobbying activity had ended, the Association for Digital Assets Markets, or ADAM, also contracted Conaway Graves, its first reported moves into lobbying. At the end of June, FTX — a member of ADAM — registered its own contract with Conaway Graves. 

The firm also does work for a number of agricultural organizations. It remains, broadly, a fairly small operation. 

“The growth in that space has been organic for us. Folks have kind of come to us,” Graves told The Block. “Mike and I take very seriously our reputation and who we work with.”

The House and Senate Agriculture Committees oversee the Commodity Futures Trading Commission (CFTC). FTX has become the most visible member of a movement to create a regulatory regime for crypto exchanges at the CFTC, rather than the larger and more aggressive Securities and Exchange Commission. The Ag Committees, for their part, have been receptive. 

Towards the end of his term, Conaway introduced the Digital Commodity Exchange Act, which proposed a voluntary regime. His successor on the Ag Committee, GT Thompson (R-PA) has picked up on effectively the same bill. It’s been a move popular with crypto marketplaces.

DiRoma Eck & Co

Key stats: 

• Total receipts in Q1 2022: $145,000
• Total receipts from crypto clients in Q1 2022: $80,000
• Major crypto clients: Chainalysis, Marathon Digital, Uniswap Labs

DiRoma Eck & Co is a relatively young firm, launching in September 2020 when founders Michael DiRoma and Andrew Eck left positions at the Treasury Department. DiRoma had previously worked for Senator Susan Collins (R-ME), while Eck had been a staffer on the House Financial Services Committee.

With a contract filed in January 2021, blockchain forensics leader Chainalysis was the firm’s second reported client for lobbying work. Bitcoin mining giant Marathon Digital contracted the firm shortly thereafter. 

Just last month, Uniswap Labs registered a contract with the firm — the DeFi developers’ first formal entrance into lobbying, aside from, arguably, chief legal officer Marvin Ammori’s involvement in the launch of the DeFi Defense Fund.

In an email to The Block, DiRoma notes that the firm “represents a number of significant crypto-related firms from various corners of the industry who have really become thought leaders to policymakers across Washington.”

The firm’s website indeed highlights a number of appearances by its clients before congressional committees. Many of those come from Chainalysis, particularly co-founder and CSO Jonathan Levin, who has become one of the most visible representatives of the crypto industry before Capitol Hill. 

Sternhell Group

Key stats: 

• Total receipts in Q1 2022: $1.19 million
• Total receipts from crypto clients in Q1 2022: $350,000
• Major crypto clients: Coin Center, Meta, Silvergate, Robinhood, Gemini Trust, Dapper Labs, Crypto Council for Innovation

Sternhell Group is maybe the earliest lobbying firm to work on crypto policy. Founder Alex Sternhell was a leading staffer on the Senate Banking Committee before joining Cypress Advocacy in 2008. He launched Sternhell Group in 2009. 

Alex Morcos’ project, Distributed Technology Innovations, contracted the firm in February of 2014, marking Sternhell Group’s first formal entry into digital asset policy. Later that year, it became the first lobbyist that crypto advocacy non-profit Coin Center turned to. Coin Center would go on to hire Robin Weisman of Sternhell Group affiliate RWC as counsel. Coin Center also lists Alex Sternhell as outside counsel. 

Meta, formerly known as Facebook, contracted Sternhell Group back in 2019, at the time that Mark Zuckerberg was facing a debacle on Capitol Hill over the now-aborted Libra/Diem stablecoin.

Crypto-focused bank Silvergate, trading app Robinhood, and NFT collectible devs Dapper Labs are among Sternhell Group’s other clients. It is also the only lobbying firm that Gemini employs. Crypto Council for Innovation, a newly staffed trade association, has also contracted the Sternhell Group, a representative for CCI has told The Block, its first lobbying since rebooting and restaffing at the beginning of 2022. 

“There are definitely firms focused solely on crypto policy. My practice is a tradfi practice with a particular specialization in crypto issues and continues to be,” Sternhell says. “It’s not simply clients that are crypto native that care about crypto. This is an asset class and technology that has gotten a lot of attention and focus from a broader group of financial services and technology.”

Franklin Square Group

Key stats: 

• Total receipts in Q1 2022: $1.9 million
• Total receipts from crypto clients in Q1 2022: $200,000
• Major crypto clients: Algorand, Coinbase, Stripe, Opensea, Block fka Square

Franklin Square Group is the largest firm on this list by total accounts and has a broader focus on innovation. Franklin Square advertises its work as “bridging the gap between government and technology.” 

Some of its earliest clients included Google and Apple in the halcyon era of 2008, before tech giants fell from grace among regulators. Today, Franklin Square works with companies like Reddit, Intuit and GoDaddy.

“I’ve never felt more busy. Why do I feel so busy? Well, if you look at the headlines, tech is involved in more than half of the biggest issues of the day,” founder Josh Eckil told The Block. 

For more crypto-specific work, Square (now Block) contracted Franklin Square from 2011 to 2017. Franklin Square was subsequently the first lobbyist that both Stripe (in 2016) and Coinbase (in 2017) contracted Franklin Square back in 2017, retaining the firm as its only outside lobbyist through 2020 and, ultimately, hiring Kara Calvert from Franklin Square to run its now-massive internal lobbying program. 

Algorand has contracted Franklin Square since the beginning of 2020 and, on July 8, the firm registered to lobby on behalf of OpenSea. For both companies, the contract with Franklin Square is the only lobbying they report engaging in. 

© 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.