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Genesis Asia Pacific Pte Ltd, a division of the crypto lender owned by Digital Currency Group, lent $2.36 billion to collapsed hedge fund Three Arrows Capital (3AC).  

Earlier reports have stated that Genesis faced a potential nine-figure loss from its exposure to 3AC, but the exact size of the debt has not been reported until now. 

Documents obtained by The Block highlight the $2.36 billion outstanding loan balance owed to Genesis by 3AC. They also show that the debt is undercollateralized, and that Genesis tried to recover some of its loans by commencing arbitration proceedings against 3AC through the American Arbitration Association (AAA) in New York last month. 

Genesis, however, appears to have paused the arbitration process after the appointment of advisory firm Teneo to oversee 3AC’s liquidation in late June. 3AC filed for Chapter 15 bankruptcy in New York on July 1. 

A spokesperson for DCG told The Block: “Both the DCG and Genesis balance sheets remain strong. With no remaining exposure to Three Arrows Capital, Genesis continues to be well-capitalized and its operations are business as usual.” 

The details of the 3AC loans were revealed in a 1,157-page legal document uploaded online on Monday by Teneo, the firm appointed last month to oversee 3AC’s liquidation. The document — which The Block obtained before it became public — outlines claims against 3AC, which filed for Chapter 15 bankruptcy in New York a few days after a court in the British Virgin Islands appointed Teneo as liquidator.

In its letter to the AAA dated June 15, Genesis claimed that 3AC had breached two lending agreements that were signed in January 2019 and January 2020. 

Genesis CEO Michael Moro said in a series of tweets on July 6 that the company’s loans to 3AC had a weighted average margin requirement of over 80%, which 3AC had been unable to meet, prompting Genesis to sell its collateral. He also said that Digital Currency Group had assumed certain Genesis liabilities to ensure it has the capital “to operate and scale” its business going forwards.

Because of this, it is now Digital Currency Group — not Genesis — that is exposed to potential losses linked to 3AC’s borrowing, according to one person familiar with the matter.  

The documents obtained by The Block refer to a demand from Genesis that $1.1 billion in “outstanding unsecured borrowings” be placed in escrow for the length of the arbitration proceedings. That claim now belongs to Digital Currency Group, not Genesis.  

According to the documents obtained by The Block, 3AC was some $462 million short of its collateral requirements as of June 15. 

The documents also contain details of the collateral posted by 3AC. Backing Genesis’ loans were three blocks of shares in the Grayscale Bitcoin Trust (GBTC), totaling 17,443,644 shares; 446,928 shares in the Grayscale Ethereum Trust; 2,739,043.83 AVAX, the native token of the Avalanche blockchain; and 13,583,265, NEAR Protocol’s native token. 

Until just a few months ago, 3AC was thought of as one of the crypto sector’s foremost investment firms — backing dozens of blockchain developers, DeFi startups, and crypto infrastructure providers. But its fortunes have rapidly reversed in the past few months, beginning in mid-June when it transpired that crypto lenders had liquidated hundreds of millions of dollars worth of collateral backing loans to the hedge fund. 

Three Arrows Capital was contacted for comment but did not respond by press time. 

For more breaking stories like this, make sure to follow The Block on Twitter.

© 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.

Lido Finance is set to debut liquid staking on several Ethereum Layer 2 networks, the platform announced on Monday.

Lido is a decentralized finance protocol (DeFi) for liquid staking of proof-of-stake cryptocurrencies. Liquid staking unlocks the value of staked crypto via staking derivative tokens that stakers can deploy on other DeFi protocols.

According to today’s announcement, Lido is bringing staked ETH (stETH) to Ethereum’s Layer 2 DeFi space. Staked ETH is the staking derivative token users receive in exchange for staking their ETH via Lido.

Lido has already integrated with both Aztec and Argent. The former is a privacy-focused Layer 2 network that uses zk-rollup while the latter is a Layer 2 wallet provider that uses zkSync.

Zk-rollup stands for zero-knowledge rollups and is a Layer 2 scalability solution that allows faster and cheaper transaction processing than on the Ethereum mainnet. ZkSync is an application of the zk-rollup technology.

Lido says its first foray into Layer 2 will begin by offering support for wrapped stETH (wstETH). With support for Aztec and Argent, zkSync users will be able to bridge and stake wsETH on supported Layer 2 networks. To bridge in crypto means to move coins across different networks.

Monday’s announcement also stated that Lido has plans to expand its Layer 2 footprint. These plans include allowing direct ETH staking on Layer 2 without bridging their assets back to the Ethereum mainnet.

Lido is already the dominant liquid staking platform on Ethereum. The platform accounts for almost a third of all ether tokens staked on Ethereum 2.0. Lido Finance recently voted against a proposal to limit the protocol’s share of the ETH2 staking pool.

© 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 65 of Season 4 of The Scoop was recorded remotely with The Block’s Frank Chaparro and Staci Warden, CEO of The Algorand Foundation.

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

Although Algorand may not be the most popular blockchain ecosystem, its underlying technology is arguably among the most cutting edge.

Founded in 2017 by Silvio Micali, MIT professor and Turing Award recipient for his pioneering work in the fields of cryptography and computer science, Algorand uses a highly efficient consensus mechanism it calls pure proof of stake, and is one of the most energy-efficient blockchains in the industry.

While Silvio Micali oversees the research and development of Algorand’s technology, the Algorand Foundation is responsible for helping the surrounding community flourish.

In this episode of The Scoop, Algorand Foundation CEO Staci Warden detailed recent developments in the Algorand ecosystem that she hopes will harness the power of Algorand’s technology for global good. 

“We have the best tech in crypto, and I think a lot of people would acknowledge that,” Warden says. She cites Algorand’s roughly 1,000 transactions per second and 4.5 second settlement time — which the development team hopes to increase to 10,000 transactions per second and 2.5 second settlement time by the end of the year.

Given these performance indicators, Warden believes Algorand is equipped to handle problems at scale. As she explains,

“When you’ve got a machine like that, of course you start thinking big — and so we think in terms of very big global problems.”

One of these problems is financial inclusion, which the Algorand Foundation is looking to address through an upcoming partnership with an organization that is planning to make 4G mobile phones preloaded with Algorand’s tech available to people in Africa who might otherwise be unable to access traditional financial services.

Algorand also has a growing decentralized finance ecosystem, largely due to an ecosystem fund launched last September that today is worth approximately $50 million.

During this episode, Chaparro and Warden also discuss:

• How Algorand became one of the first ‘carbon-negative blockchains’
• Decentralized governance and the decentralization of the Algorand protocol
• Why Warden thinks Algorand will come out of this bear market stronger than ever

This episode is brought to you by our sponsors Chainalysis & IWC Schauffhausen

About Chainalysis
Chainalysis is the leading blockchain data platform. We provide data, software, services, and research to government agencies, exchanges, financial institutions, and insurance and cybersecurity companies in over 60 countries. Backed by Accel, Addition, Benchmark, Coatue, Paradigm, Ribbit, and other leading firms in venture capital, Chainalysis builds trust in blockchains to promote more financial freedom with less risk. For more information, visit www.chainalysis.com.

About IWC Schaffhausen
IWC Schaffhausen is a Swiss luxury watch manufacturer based in Schaffhausen, Switzerland. Known for its unique engineering approach to watchmaking, IWC combines the best of human craftsmanship and creativity with cutting-edge technology and processes. With collections like the Portugieser and the Pilot’s Watches, the brand covers the whole spectrum from elegant timepieces to sports watches. For more information, visit IWC.com

© 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

• Many projects are attempting to scale Ethereum at Layer 1 or Layer 2, but few are attempting to improve upon the Ethereum Virtual Machine (EVM) itself
• FuelVM is one of the leading projects in this new approach to blockchain scalability – embracing a view of the future of blockchains as a modular stack rather than monolithic
• In this approach, FuelVM would purely handle the execution of transactions while delegating the rest of the functionalities of a blockchain (e.g., consensus, data availability, settlement) to other chains

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

Decentralized voting platform Snapshot will soon introduce shielded voting, a privacy-preserving feature that will enable decentralized autonomous organizations (DAOs) to encrypt individual votes when a governance vote is still going on. 

If a particular vote has not concluded, shielded voting will fully hide the distribution of already-cast votes. Once the voting is finalized, all votes will be revealed, along with their respective addresses as well as automatic calculation of results.

Snapshot is one of the most widely-used governance tools among crypto projects. The off-chain voting system is used by hundreds of DAOs to democratically make decisions on topics such as roadmap and treasury spending via multiple-choice or a simple “yes or no” voting scheme.

Whenever there is a governance vote on Snapshot, anyone can check data on who is voting and for which voting option. While this is great for transparency, providing information on already-cast votes can inadvertently influence behavior of the remaining voters. 

In rare cases, the voting information can also be abused towards undesirable actions from stakeholders, such as vote collusion or vote buying to sway governance decisions. Having the votes shielded can prevent such situations, a spokesperson for Snapshot told The Block.

“Everyone should be on the same information level when they vote. That’s how we do it for real elections as well,” Nathan van der Heyden, ecosystem lead at Snapshot told The Block. “Due to the state of a certain vote, voters might be inclined to change their behavior. Knowing how others voted has an influence on our own voting behavior.” 

To integrate shielded voting, the Snapshot team has partnered with Shutter Network. Snapshot’s shielded voting relies on threshold encryption, a cryptographic solution offered by a project called Shutter Network.

Any DAO using Snapshot will be able to enable shielded voting in their admin view. The feature is currently at the end of its closed beta and will be released this week for everyone to test.

© 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.

Christie’s, the renowned British art and luxury business, has launched an investment fund that will aim to support emerging technology and fintech companies related to the art market.

The new fund, called Christie’s Ventures, will initially focus on three areas: web3 innovation, financial technology related to art, and other solutions that “enable seamless consumption of art,” according to a statement from the company. 

The venture arm’s first investment is in LayerZero Labs, an interoperability protocol that makes moving assets between different blockchains easier for clients. The company did not reveal the size of the venture fund or how much it will invest in LayerZero Labs. 

“We will focus on products and services which can solve real business challenges, improve client experiences, and expand growth opportunities, both across the art market directly and for interactions with it,” Devang Thakkar, Global Health of Christie’s Ventures, said in a statement. 

This is far from Christie’s first foray into web3 and crypto. In March of 2021, the platform auctioned off its first non-fungible token (NFT) art piece, which was created by the artist Beeple, for $69 million. Since then it has held a number of additional NFT auctions. In December, the company partnered with NFT marketplace OpenSea to curate Christie’s first on-chain NFT auction.

© 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.

Coinbase has obtained a license to operate in Italy as a cyrpto asset service provider as the exchange expands in the region. 

According to a blog post on Monday, the publicly traded crypto exchange now meets the new requirements put in place by the Italian regulatory authority Organismo Agenti e Mediatori. It claims to be one of the first companies to meet these benchmarks.

“Gaining this regulatory approval is a testament to our close collaboration and positive working relationship with the Italian financial regulators,” said international and business development VP Nana Murugesan in the statement. “As we continue to grow across Europe and other regions, maintaining our strong regulatory relationships will ensure that we will continue to bring to market the products that our customers want, through the most trusted and secure platform in the cryptoeconomy.” 

Earlier this month, the US-based cryptocurrency exchange outlined steps to grow its presence in the UK and continental Europe. These involve meeting policymakers in the UK, establishing a regional centre in Ireland and expanding its footprint across the region. In Ireland and the UK, Coinbase currently operates via an e-money license, a regulatory tool that allows fintech companies to provide payment services. 

The Block contacted the Coinbase press office for further comment but did not hear back by the time of publication. 

© 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.

Binance has been fined €3.3 million ($3.4 million) by the Dutch central bank for offering crypto services without a legally required registration. 

According to a release on Monday, companies that want to offer cryptocurrency services in the Netherlands must register with the central bank under the Money Laundering and Terrorist Finance Prevention Act. It says that these were introduced in May 2020 due to how the anonymity of crypto transactions makes it less easy to monitor transactions by criminals. 

“Binance has a very large number of customers in the Netherlands,” the bank, which is known as DNB, said in the statement. “In addition, Binance has enjoyed a competitive advantage because it has not paid any levies to DNB and has not had to incur other costs in connection with ongoing supervision by DNB.” 

Previously issuing a public warning on Binance’s operations in the country last August, the central bank said it considers these violations by the cryptocurrency exchange to be “very serious”. It did say, however, that the authority received a registration application from the cryptocurrency exchange which it is currently assessing.

A Binance representative confirmed that it’s currently applying for registration as a crypto service provider through Binance Nederland BV, a locally-established entity. 

“Today’s decision marks a long-awaited pivot in our ongoing collaboration with the Dutch central bank,” said a Binance spokesperson when contacted for comment. “While we do not share the same view on every aspect of the decision, we deeply respect the authority and professionalism of Dutch regulators to enforce regulations as they see fit.”

This latest fine stands in contrast to the recent licenses to operate Binance has procured in other European countries recently. A Binance representative noted that earlier this month, its Spanish subsidiary was approved to operate in the country. This followed similar rulings by regulators in France and Italy.

© 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 NFT market is cooling down, according to the data.

Monthly trading volumes for non-fungible tokens (NFTs) fell 74% between the months of May and June, according to data compiled by The Block Research. May saw $4 billion in volume, while June saw $1.04 billion in trading volume, as per The Block’s data dashboard. 

The 74% decrease is the largest month-over-month decline in NFT marketplace trading volume to date. The second biggest month-over-month decline occurred between February and March of this year, which saw a decrease of 48%. 

OpenSea dominated the market in June with $696 million in total volumes for June, representing 67% of the month’s total monthly volume. Despite having comprised the majority of NFT trading volume amid the NFT market downturn, OpenSea announced on July 14 that it will downsize its workforce by 20%.

Despite falling volumes, Magic Eden, an NFT marketplace for Solana-based NFTs, has slowly carved out a market share against OpenSea — even after OpenSea activated support for Solana in April of this year. Magic Eden made up 0.1% of trading volume at the beginning of 2022 and now brings in over 10% of that volume, according to The Block’s data. 

© 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 market downturn might actually be a good thing for deal-making in crypto, according to Galaxy Digital’s top advisory executive. 

“Overall, there is a lot more receptivity to the idea of M&A in this market environment,” Galaxy’s head of investment banking Michael Ashe said in an email to The Block.  

That’s striking considering market down turns typically result in a pull back in M&A and initial public offerings. In Ashe’s view, the down turn has forced certain participants to more seriously consider being acquired relative to last year when crypto prices were surging and valuations for private crypto firms were frothy. 

“The effective closing of the capital markets has forced companies to reassess their strategic goals,” Ashe — previously a director at Oppenheimer & Co. — added. “As part of that, many are contemplating acquisitions and even moving forward with M&A in situations where they haven’t contemplated selling. This is a big change from last year’s environment, where companies and founders were dissuaded from M&A because there was effectively a control discount, meaning companies could raise money at valuations greater than what they could sell their businesses for.”

Indeed, a plunge in prices precipitated significant liquidity issues for some firms, from lenders like Celsius and Voyager to funds like Three Arrows Capital. 

Against this backdrop, crypto lender Nexo has agree to acquire Singapore-based rival Vauld. Sam Bankman-Fried’s firm FTX.US also announced its own plan to snap up BlockFi. Binance’s Changpeng Zhao said the crypto exchange was looking at around 50 to 100 investment and acquisition deals in an interview with Yahoo Finance. 

“Our expectation is there will continue to be distressed assets as companies run out of runway and capital,” Ashe said. “In terms of potential buyers, I expect private equity firms and traditional shops to use distressed assets as a means of entering the space.”

The heightened activity would continue the first half of the year’s hot streak. New data from merger and acquisition advisory firm Architect Partners shows the M&A market was red-hot in the first half of 2022.

In its recently released snapshot for the first half of 2022, the firm said that deal-making activity in the first half of 2022 surpassed last year’s “record pace” with “bridge” transactions — those linking legacy and crypto firms — making up 49% of M&A activity during the period. The firm, which has advised companies like Diem and FairX, expects the number of such deals to increase. 

Still, Architect takes a different position than Galaxy’s Ashe. The pace of M&A in the first half of 2022 exceeded last year’s record pace, according to Architect Partners, but recent volatility might lead to a dip in that activity.

It’s expecting distressed M&A to be prevalent in the upcoming quarter due to the market events seen in Q2.

Architect Partners says exchanges, exchange infrastructure, mining and data remain the most mature sub-sectors of the industry and are slated to see the most M&A activity through the end of 2022. Valuations are taking a hit, but those of healthy companies “remain high relative to general technology and fintech sectors due to growth potential and capital dedicated to crypto,” according to the firm.  

© 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.