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The UK’s Treasury on Tuesday published an initial consultation on managing “systemic failure” in digital assets, proposing bolstered protections related to stablecoins. 

It recommended that regulation be put in the hands of the Bank of England, which would have “powers of direction over an appointed administrator” should a so-called digital settlement asset (DSA) fall into trouble.

“This role will enable it to pursue its statutory role with regard to financial stability,” the consultation document said, adding that it’s “important to ensure existing legal frameworks can be effectively applied to manage the risks posed by the possible failure of systemic DSA firms.”

The Treasury’s call for responses closes August 2 and will be considered by parliament in due course. The UK’s Financial Conduct Authority also has plans to scrutinize the fallout following this month’s crash. 

The move comes just weeks after the death spiral of Terraform Labs’ algorithmic stablecoin TerraUSD — known by its ticker UST. The stablecoin broke its peg to the US dollar in early May, destroying more than $40 billion in market value as its related token luna entered free fall. 

© 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 neobank Kroo has raised £26 million ($33 million) in a Series B funding round, despite the pace of fintech funding slowing down after the highs of 2021. 

Along with the typical neobank features, Kroo believes it differentiates itself from competitors by offering “socially conscious” initiatives such as a customer tree-planting referral scheme and by pledging a portion of its profits to social causes. The bank currently has 23,000 users of its prepaid card. 

“The money raised will go a long way in supporting the launch to market of our current account, the development of our lending proposition and the scaling up of the company,” CEO Andrea de Gottardo said in a statement on Tuesday. “We are very excited to offer to the UK customers a new digital bank that will have a positive impact on their lives.” 

According to the release, the company will seek Series C funding next year. The news follows fellow UK-based neobank Starling’s £130 million raise last month.

The statement didn’t give details on who has invested in the round, or what valuation it places on the company. A spokesperson for Kroo didn’t immediately respond to a request for further information.

© 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 Monetary Authority of Singapore (MAS) announced on Tuesday that it plans to research use cases for decentralized finance (DeFi) on public blockchains.

Known as Project Guardian and including partners such as JPMorgan, Marketnote and DBS, the project will look to collaborate with the financial industry to examine the “economic potential and value-adding use cases of asset tokenization.”

In a statement, MAS defined tokenization as “the process of digitally representing assets or items of value through a smart contract on a blockchain. This allows high value financial and real economy assets to be fractionalised and exchanged over the internet on a peer-to-peer basis.” 

Project Guardian will stress test the feasibility of applications in asset tokenization and DeFi, developing pilot use cases in four main areas: open interoperable networks, trust anchors, asset tokenization and institutional grade DeFi protocols. 

The first pilot taking place under the initiative, and led by financial industry partners, involves creating a permissioned liquidity pool. This will consist of tokenized bonds and deposits, with the purpose of carrying out secured borrowing and lending on a public blockchain, executed by smart contracts. 

“Developed on public blockchain, this pilot is also pivotal as it furthers efforts to innovate, advance and scale institutional financial applications on blockchain and their interoperability across different blockchain networks with the long-established rails of the existing financial markets. We believe that these early explorations in DeFi solutions will ensure the competitiveness and relevance of Singapore as a cutting edge financial centre,”  Han Kwee Juan, group head of planning and strategy at DBS, said in the statement.

© 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 custody provider Copper announced on Monday that its Swiss unit has gained regulatory approval from the country’s Financial Services Standard Association.

The body, known as VQF, is a self-regulatory organization recognized by the Swiss regulator, the Financial Market Supervisory Authority (FINMA). The approval speaks to Copper’s compliance with local anti-money laundering rules. 

“As Copper expands globally, VQF’s validation underscores our commitment to working with regulators around the world, to standards set in multiple jurisdictions, to become a worldwide leading provider of digital asset custody and infrastructure,” Copper’s chief legal officer, Carly Nuzbach Lowery, said in a statement. 

The nod comes amid a what has been a protracted process for the Financial Conduct Authority (FCA) to approve some of the UK’s biggest cryptoasset providers to its own anti-money laundering register. Copper remains on the regulator’s temporary cryptoasset register — a measure brought in so that firms could continue operating in the UK while the it decides their fate. 

That list is shrinking. As of Monday, it had dropped from five firms to four: Copper, neobanking giant Revolut, trading platform CEX.IO and custody provider ITI Digital, also known as Rubicon. 

Without full registration, firms will in theory be forced to stop all crypto-related activities in the UK. The Block earlier reported that, as of February 10, 96 UK crypto firms had applications awaiting a decision from the regulator. 

© 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.

German DeFi platform Alloy has won the backing of Checkout.com founder Guillaume Pousaz in a $3 million pre-seed round led by Headline Ventures.

In an announcement this morning, Alloy said Pousaz had invested via his family office Zinal Growth, alongside Sorare founder Nicolas Julia and Seedcamp. 

Alloy is aiming to build a decentralized finance (DeFi) platform targeting institutional investors, which founder Paul Faecks says remain hesitant to participate in the DeFi ecosystem despite their interest. 

“So most of the challenge is regulatory and on the client-side of things where the more sophisticated investors want a legal framework that allows them to deploy capital into DeFi but still have custody and KYC AML checks handled,” he says, claiming that Alloy is one of the first companies in the EU to offer regulated DeFi strategies. 

Alloy is able to do that because it is regulated via a partnership with a custodian, Faecks added. He says that the company is also looking at becoming regulated directly by BaFin, the German regulatory body. Much of the $3 million will go towards getting such an approval, along with building out the tech infrastructure behind the platform. 

The platform, which will initially launch on the Ethereum network in the latter part of 2022, is looking to service funds and family offices, particularly those belonging to tech founders who already have knowledge of crypto.

Faecks says that the platform has five confirmed funds for launch based in the EU and the US. 

© 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.

Mirror Protocol, a DeFi app on the Terra blockchain, has suffered another exploit. So far, more than $2 million has been taken and if the bug isn’t fixed by 4:00 AM ET tomorrow, all of its pools for tokenized assets will be at risk.

Mirror protocol allows users to take long or short positions on tech stocks using synthetic assets. It’s running on the old Terra blockchain — now called Terrra Classic — which was replaced by a new blockchain after the collapse of its main stablecoin TerraUSD (UST) and its sister token Luna, now called Luna Classic (LUNC). Despite being shelved, the old blockchain continues to run.

Mirror protocol also has its own versions of other cryptocurrencies, such as mBitcoin for bitcoin (which is supposed to be tied to bitcoin’s price). It is primarily these pools that have been drained so far. According to the Mirror Protocol website, the pools for bitcoin, ether and polkadot have been drained. In addition, the pool for the token representing Galaxy Digital stock has been drained.

A Terra community member known as FatMan — who represented the voice of many who opposed the way the new Terra blockchain was launched — estimated that more than $2 million has been taken so far. He told The Block that he looked at a range of transactions and made this estimate, but has asked researchers to total up the full amount.

The remaining pools are all tied to stocks and aren’t available for trading until pre-market trading opens at 4:00 AM ET. At that point, the exploit may be used for the remaining pools — unless the bug is fixed in time.

What caused the problem?

The issue appears to be related to the protocol’s oracle. An oracle is the way a protocol collects data, including from the real world. In this case, the oracles fetch data relating to the price of stocks and certain cryptocurrencies.

According to Todd Garrison, founder of Block Pane — which runs validator nodes on various blockchains — the issue is that the majority of validators running nodes on the Terra Classic chain are running an outdated version of the price oracle. As a result, these nodes are telling the Mirror Protocol that LUNC is worth 5 TerraUSD (UST) ($0.10), instead of being just a fraction of a cent.

“Please look into fixing the LUNC price oracle, because in a short while, all liquidity pools will be drained, Mirror will accrue irremediable bad debt, and the system will collapse in on itself. This is not the time to be negligent,” he said on Twitter, linking relevant Twitter accounts.

The attack has been ongoing over the last couple of days — but so far it hasn’t affected the majority of tokenized stocks as the stock market was closed over the weekend and for Memorial Day in the US. It was first noticed on May 29 by a pseudonymous user known as “Mirroruser,” who reported it on the Mirror forum. They provided several addresses related to the exploit.

FatMan also identified a previous bug involving Mirror Protocol last week, which was confirmed by security analysts BlockSec. He found that the protocol suffered a $90 million exploit toward the end of last year, one that went unnoticed for seven months.

© 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.

In October 2021, DeFi application Mirror Protocol succumbed to a $90 million exploit on the old Terra blockchain — and it went completely unnoticed until last week.

Mirror protocol allowed users to take long or short positions on tech stocks using synthetic assets. It was built on Terra, which collapsed earlier this month after its main stablecoin lost its peg to the US dollar, dragging its sister token Luna down with it. (The blockchain has now been revived as Terra 2.0, while the original chain lives on as Terra Classic).

The exploit was discovered accidentally by a Terra community member known as “FatMan.” He has been one of the most vocal antagonists in the recent launch of the new Terra blockchain.

Security firm BlockSec corroborated the community member’s findings by analyzing the specific exploit transaction. BlockSec confirmed an exploit did indeed take place.

How did the exploit happen?

Whenever someone wanted to bet against a stock on Mirror, they had to lock collateral — including UST, LUNA Classic (LUNC), and mAssets — for a minimum of 14 days.

After the trade concluded, users could unlock the collateral to release the funds back to the wallet. All of this was done with the help of smart contract-generated ID numbers. 

However, due to buggy code, the Mirror’s lock contract allegedly failed to check when someone used the same ID more than once to withdraw funds. 

In October 2021, one unknown entity noticed that they could use a list of duplicate IDs to repeatedly unlock hundreds of times more collateral than they had. This basically meant the perpetrator could withdraw funds without any authorization.

This entity drained about $90 million in total, according to blockchain records. 

Going unnoticed for seven months

The Mirror exploit may be one of the rare events where, despite the presence of on-chain data, a major hack remained undisclosed for a long time. Usually, projects are quick to report security events for the sake of transparency.

BlockSec said the exploit likely went unnoticed because fewer people were scanning for issues on Terra compared to Ethereum and Ethereum-compatible chains.

In addition, there was no interface on the Mirror website that made it possible to check the total amount of collateral in the protocol. This made it much harder to notice the vulnerability without sifting through a large amount of blockchain data.

Earlier this month, Mirror developers quietly fixed the vulnerability, at around the same time as the UST stablecoin began to collapse. A week later after the patch, community members began wondering if there could have been an exploit, according to a governance discussion. It’s unclear if Mirror’s developers knew about the exploit.

This isn’t, however, the first time a hack has gone under the radar for a short time. When hackers stole $600 million from the Ronin sidechain in March 2022, a week went by before anyone realized it had happened. It was only when users found they were unable to withdraw their funds did anyone realized there was a shortfall.

Mirror Protocol, which is the subject of an SEC enquiry, has not yet made an official comment on the matter. The team at Mirror or Terraform Labs haven’t yet responded to a request for comment. 

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.

Quick Take

• $53mm Series A in Dec-21 led by Balderton Capital 
• Non-custodial fiat to digital asset on-ramp solution 
• +45 Tokens Integrated; +400 partnership integrations; +170 Countries Supported

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WhiteBit, an Estonian crypto exchange, paid 500 ETH ($940,000) for the winner’s trophy from this year’s Eurovision Song Contest in an online auction to raise funds for Ukraine’s army. 

The glass, microphone-shaped trophy was among several items sold by Ukrainian band Kalush Orchestra on Sunday to support the armed forces following Russia’s invasion in February. The band had taken the Eurovision title earlier this month for its song Stefania. 

“We appreciate each and everyone of you who donated to this auction and a special thanks to the team WhiteBit who purchased the trophy for $900,000 and are now the rightful owners,” the band posted on its Facebook page. 

The auction of Eurovision memorabilia appears to have raised more money than Ukraine’s much publicized sale of non-fungible tokens (NFTs), known as Meta History: Museum of War. In April, after more than 1,600 NFTs from the collection were listed as sold on marketplace OpenSea, a spokesperson for the Ukrainian Ministry of Digital Transformation told The Block they had raised over $600,000. 

Some 1,700 Meta History NFTs are currently listed on OpenSea, with a floor price of 0.075 ETH. That’s down about 50% from the 0.155 ETH floor price in early April. 

Ukraine’s government originally planned to sell 2,182 NFTs for the collection — with images marking key events in the war with Russia — and it appears many have never found a buyer.

© 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.

Prosecutors in South Korea have summoned all employees of Terraform Labs to investigate the collapse of TerraUSD, the stablecoin known by its UST ticker, according to a report from local television network JTBC on Saturday.

Specifically, the Seoul Southern District Prosecutors Office’s joint financial and securities crime investigation team has summoned Terraform employees, JTBC reported, without citing any sources.

One unnamed employee, known to have been involved in the initial development of the Terra blockchain in 2019, has reportedly already testified. This employee is said to have told prosecutors that there were concerns about UST’s design from some within Terraform Labs.

The algorithmic stablecoin UST dramatically crashed earlier this month, destroying more than $40 billion of value for investors. UST’s price, which was always supposed to be $1, fell below 10 cents and still hasn’t recovered. It is now trading at 3 cents, according to CoinGecko data. UST’s sister token, luna, lost almost its entire value and is now trading at a fraction of a cent.

As a result of the implosions, Terraform Labs launched the new Terra blockchain, called Terra 2.0, over the weekend. It abandoned UST as part of the new blockchain and renamed the original luna tokens to “luna classic” (LUNC). 

Per the JTBC report, prosecutors are looking at the whole matter, including whether CEO Do Kwon and other Terraform Labs executives neglected UST’s design flaws. Prosecutors are reportedly also looking into whether local cryptocurrency exchanges went through a proper listing review before listing UST or luna.

Earlier this month, Korea’s financial regulators — the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) — reportedly launched “emergency inspections” into local crypto exchanges to enhance investor protection.

The Block has reached out to Terraform Labs for comment on the JTBC report and will update this story 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.