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Crypto trading app OKX has secured a provisional license from Dubai crypto regulators to operate in the market and will open up a regional hub in the Emirate, the company announced today.

The license, issued by the Dubai Virtual Assets Regulatory Authority (VARA), will allow it to provide certain exchange products to qualified investors and financial service providers.

In a statement, Lennix Lai, the general manager at OKX Dubai, described the Middle East and North Africa region as one of the fastest growing markets for the industry. OKX will additionally be “facilitating research and knowledge sharing with the goal of making Dubai a leading hub for the global virtual assets industry.”

OKX said that it was committed to building out both its team and necessary infrastructure in the UAE.

The UAE has been courting crypto companies over the last few months as it seeks to tap into the growth of crypto in the region. VARA, the overseers of the crypto industry in Dubai, set up shop in March this year. Charged with managing Dubai’s growing virtual asset industry, it has already handed out licenses to top crypto companies such as Crypto.com, FTX and Binance, all of which will base their regional hubs in the Emirate.

© 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.

London-based trading app Lightyear has raised a $25 million Series A round led by Lightspeed Venture Partners.

Richard Branson’s Virgin Group, Mosaic Ventures, Taavet+Sen, and Metaplanet also took a stake in the round, according to a release today. 

Founded by ex-Wise employees, Lightyear is a trading app that offers multicurrency accounts to make it cheaper to buy international stocks than its competitors. Traditionally, if European retail investors want to invest in international markets, there are levied higher transaction and custody fees. 

“Having lived and worked on both sides of the pond, I’ve seen first-hand the pain points for Europeans trying to access the financial markets as easily as their counterparts in the US,” said Nicole Quinn, a partner at Lightspeed. “Lightyear is trying to fix this with a platform that customers not only love and trust, but one that understands the nuances between different regulations, languages, exchanges and cultural investing norms.” 

Lightyear launched in the UK market last year and with this Series A will expand across 19 European territories including Germany, France and Ireland. The company says after this initial European rollout, it has its sights on non-eurozone countries such as Sweden, Norway and Romania. 

The news comes as trading app giant Robinhood also makes its steps into Europe. In April, it acquired crypto wallet and card startup Ziglu in a deal subject to regulatory approval. The Block also previously reported that European trading apps such as Revolut and Freetrade are either set to launch a crypto investment feature or continue a push into digital 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.

Huobi’s version of wrapped bitcoin isn’t living up to the transparency that it promised. The $800 million of assets that are backing the crypto exchange’s token are supposed to be sitting in clearly market wallets; except they’re not. 

Instead, the money appears to have been spread among other exchange wallets, also owned by Huobi. The problem here is not that the money is necessarily gone; it’s plausible that Huobi is using its exchange hot wallets to make it easier to process transactions. The issue is that market observers cannot see for themselves whether the token is still backed. 

For all we know — from checking Huobi’s official transparency page — the $800 million of outstanding Huobi Bitcoin (HBTC) is backed by less than $30,000.

The Block reached out to Huobi for comment but — after an initial response — the exchange stopped replying to follow up emails. The exchange did not provide any explanation for why the bitcoin was moved, nor would answer whether HBTC was still fully backed.

‘Transparent and verifiable’

Huobi created HBTC in February 2020 as its proprietary form of wrapped bitcoin. Wrapping bitcoin is a process where you take bitcoin on the Bitcoin blockchain, lock it up in a wallet and issue a tokenized version of it on another chain, in this case on Ethereum. 

At the time, Huobi said HBTC would be “transparent and verifiable,” enabling anyone to authenticate the assets on both the Bitcoin and Ethereum blockchains.  

For a while, it seemed that this was the case. In early August 2021, the supply of HBTC was around 31,000 and Huobi’s two official wallets contained around 39,700 bitcoin.

Yet between August 20 and August 26 of last year, practically all of this collateral was moved out of both wallets. The funds were split into three sums and all were sent to this wallet. Each was then repeatedly shifted to new wallets, with small amounts siphoned off at each turn. 

Huobi also created wrapped assets for six other cryptocurrencies: bitcoin cash (BCH), polkadot (DOT), tezos (XTZ), bitcoin satoshi’s vision (BSV), filecoin (FIL) and litecoin (LTC). Out of these, only Huobi’s version of BSV (HBSV) is fully backed by collateral in the official wallets. The transparency page shows no data for its version of filecoin at time of writing.

All the assets have a combined total supply worth $865 million but yet just $5.5 million in collateral in the official transparency wallets.

How this compares to others 

HBTC is failing to offer the transparency provided by Wrapped Bitcoin (WBTC), the most common form of wrapped bitcoin. 

WBTC is run by a conglomerate of crypto businesses, including Compound and BitGo. The project’s website provides a list of 268 bitcoin wallets that contain its $4.8 billion of bitcoin — and these wallets do indeed contain that amount of the cryptocurrency. This enables those using the wrapped token to know that it’s fully backed.

Still, not all wrapped bitcoin projects offer this level of transparency. RenBTC, another version of wrapped bitcoin with a market cap of $100 million, initially used the crypto data service Chainlink to show its proof of reserves. But it now just has a statement on its dashboard that says how much it has in reserve — a sum equal to the amount issued on its network — and doesn’t provide any links to where the money is kept.

What’s complicated about the way renBTC looks after its collateral is that every time some of the collateral is redeemed, it sends that person those funds and sends the remaining assets to a new wallet. As a result, it can’t simply provide a list of wallets where the funds are stored, since it would have to be constantly updating the list. 

This may shed some light on Huobi’s processes, as it also constantly spreads the funds to new addresses while siphoning off a little each time. Perhaps the exchange adopted this system but failed to implement a way to track the collateral, since it requires either using Chainlink or setting up an automated system. 

Either way, Huobi is — for now at least — failing to offer the transparency it originally promised. 

© 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 Celsius has declared Chapter 11 bankruptcy, court filings show.

The firm declared assets between $1 billion and $10 billion, with an equal amount in estimated liabilities, according to the Chapter 11 petition.

Celsius claimed more than 100,000 creditors in its petition. The petition names Pharos USD Fund SP and Pharos Fund SP as its largest unsecured creditor, with an unsecured claim of approximately $81 million. Other named creditors include ICB Solutions, The Caen Group LLC, Alameda Research, B2C2, and Covario AG, among others.

In a statement, Celsius said it “has $167 million in cash on hand, which will provide ample liquidity to support certain operations during the restructuring process.”

The firm is being represented by Kirkland & Ellis LLP, per the petition. A total of eight Celsius-related entities are declaring bankruptcy.

Founded in 2017 by Alex Mashinsky and Daniel Leon, Celsius offered retail investors attractive returns on their crypto holdings under the slogan “unbank yourself.” The company, which moved its headquarters from London to New Jersey last year, had grown to manage more than $10 billion in assets and claimed more than 1.7 million users. 

But this year’s crypto market slide left Celsius insolvent, and on June 12 it froze client withdrawals, transfers and swaps.

As The Block reported last month, Celsius’s lawyers had been pushing for it to enter Chapter 11 bankruptcy for a while — while the company’s executives attempted to avoid it at all costs. The firm had instead sought a show of support from app users to help win the internal argument. Amid the tension, the Wall Street Journal reported this week that Celsius had replaced its legal advisers. 

Chapter 11 bankruptcy allows a company to continue operations while meeting its obligations to indebted parties. This is usually executed by proposing a plan of reorganization to be approved by creditors and overseen by a legal team.

Since halting withdrawals in June, Celsius’s woes have mounted — with state regulators in the US reportedly lining up to investigate its business practices. This week, the Vermont Department of Financial Regulation said Celsius’s representations about the safety of customer funds were “untrue” and accused the company of engaging in an “unregistered securities offering” by offering cryptocurrency interest accounts to retail investors. 

The state of Celsius’s finances has scared off potential saviors. The Block reported last month that crypto exchange giant FTX looked at making a deal with the troubled firm but ultimately walked away after finding a $2 billion hole in its balance sheet.

“This is the right decision for our community and company,” Mashinsky said in a statement. “We have a strong and experienced team in place to lead Celsius through this process. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”

Petition by MichaelPatrickMcSweeney

This story is developing and will be updated.

© 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 Celsius is preparing to file for Chapter 11 bankruptcy, CNBC reported Wednesday.

The development comes days after Celsius tapped Kirkland & Ellis LLP to advise on a potential restructuring. Earlier Wednesday, Celsius moved to pay off its remaining crypto debt to decentralized lending protocols. 

Like other firms in the crypto finance space, Celsius has faced significant financial headwinds amid a downturn in the digital asset market. Just over a month ago, Celsius announced a halt to withdrawals and transfers. 

This story is developing.

© 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

• S&P Global has launched a DeFi strategy group, led by chief DeFi officer Charles Mounts and head of DeFi strategy Charles Jensen.
• The Block caught up with Mounts and Jensen to learn about the specific opportunity that S&P’s sees in DeFi — and where its new DeFi team sees crypto going from here.

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A magistrate judge reaffirmed yesterday that the Securities and Exchange Commission (SEC) must hand over documents related to former Commissioner Bill Hinman’s speech on cryptocurrencies in its case with Ripple.

Notably, Magistrate Judge Sarah Netburn’s opinion further accused the regulator of adopting arguments to further its desires rather than adhere to the law. 

The SEC first brought a case against the distributed ledger tech company in 2020, when it alleged the sale of its XRP token constituted an unregistered securities offering. Ripple has pushed back since then, claiming XRP isn’t a security and taking aim at what it sees as a lack of clarity in the regulator’s stance on crypto.

A 2018 speech by former Director of the Division of Corporate Finance has become a sticking point in the case. In those remarks, Hinman explained why he didn’t consider bitcoin and ether to be securities. Ripple has been seeking to obtain documents and communications related to the speech, while the SEC has employed multiple conflicting arguments in an attempt to shield them.

The SEC first argued that the speech consisted of Hinman’s personal views on crypto rather than an agency-wide policy. But then, it attempted to paint the speech as part of Hinman’s SEC duties by arguing the communications were protected by deliberative process privilege. The statute protects certain information that was part of internal deliberations in crafting policy or reaching decisions. 

The Court was unconvinced by both arguments, ruling that the SEC would have to produce the documents. Netburn denied the SEC’s request to reconsider the court order in April. At that time, her order admonished the SEC for seeking to have it both ways. 

The securities regulator made another attempt to shield the documents in June by arguing that attorney-client privilege applied to the speech, as it was developed with SEC attorneys as part of Hinman’s official duties. Yesterday, Netburn denied that as well, reaffirming that the SEC will have to produce the communications.

In her opinion, she accuses the agency of trying to have it both ways, first arguing the speech was irrelevant since it reflected personal views and later that the evidence should be protected because it was official agency deliberations.

“This question is made unnecessarily complicated by the SEC’s litigation tactics. The SEC has distanced itself from the Speech to avoid discovery and sought to preclude Hinman’s deposition on the grounds that whatever he said in the Speech, it had nothing to do with the SEC’s position. The hypocrisy in arguing to the Court, on the one hand, that the Speech is not relevant to the market’s understanding of how or whether the SEC will regulate cryptocurrency, and on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his Speech, suggests that the SEC is adopting its litigation positions to further its desired goal, and not out of a faithful allegiance to the law.”

The opinion contends that it’s clear the purpose of the communications between Hinman and SEC counsel wasn’t to provide legal advice or to inform agency decision-making, so the communications are not protected under the statutes the SEC has sought to employ.

© 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 Senate confirmed Michael Barr to serve as oversight chief for the U.S. Federal Reserve on Wednesday, ending a lengthy and dramatic nomination process that stretched over six months. 

President Joe Biden nominated Barr — a former advisor to distributed ledger tech startup Ripple — to serve as vice chair of supervision for the Fed in the spring, after Republicans and key swing vote Sen. Joe Manchin (D-WV) opposed his initial nominee. Sarah Bloom Raskin withdrew from the process in March.

Barr served in the Treasury Department during the Obama administration and helped develop the 2010 Dodd-Frank regulatory framework for financial institutions. He is a faculty member at the University of Michigan.

Barr’s confirmation means a former crypto industry adviser will work in a key role in overseeing financial institutions as inflation soars and markets remain volatile. 

The Senate voted 66-28 to confirm Barr’s nomination to serve a four-year term as vice chairman for supervision of the Board of Governors of the Federal Reserve System. Forty-five Democrats and 21 Republicans voted to confirm Barr. The 28 Senators who voted against his confirmation were all Republicans. Six Senators did not vote. 

The vice chair of supervision role is critical in “regulating our nation’s financial institutions to ensure Americans are treated fairly and to protect the stability of our economy,” Biden said in a statement when he announced his intent to nominate Barr. 

© 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 

• This is part of The Block Research’s Market Commentary series
• Secondary and third order effects of the LUNA/UST collapse and subsequent liquidations on infrastructure players remains in question ahead of July 19, 2022, Q2’22 earnings  
• Silvergate’s historical competitive advantage has been its non-interest bearing digital asset deposits 
• Key client risk includes Voyager Digital, BlockFi and Three Arrows Capital (3AC)

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members of The Block Research.
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this Research content on The Block Research.

Most bitcoin stocks were up on Wednesday by the end of the trading session.

Bitcoin’s price was around $19,600 at the time of publication, according to TradingView.

After announcing its June operational updates on Tuesday, Bit Digital’s stock rose by 4.58% on Wednesday. The company increased its bitcoin production by 26.6% but didn’t mine any ETH in June. 

BIT Mining, Mawson Infrastructure and Cipher Mining also saw their stocks go up by 7.18%, 4.72%, 3.61%.

Still, a few other companies’ stocks fell, including Northern Data, Argo Blockchain, Greenidge Generation — 10.28%, 2.94% (on the London Stock Exchange) and 1.15%.

Here’s how crypto mining companies performed on Wednesday, July 13:

© 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.