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The US Department of Justice said Tuesday that it has seized $3.6 billion worth of bitcoin tied to the 2016 hack of crypto exchange Bitfinex. 

Two individuals, Ilya Lichtenstein and Heather Morgan, were arrested in New York and are expected to appear in court Tuesday afternoon. The two are charged with conspiracy to commit money laundering and conspiracy to defraud the United States. They face as many as 25 years in prison if convicted.

The DOJ detailed the seizure operation in a press release, explaining:

“According to court documents, Lichtenstein and Morgan allegedly conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform after a hacker breached Bitfinex’s systems and initiated more than 2,000 unauthorized transactions. Those unauthorized transactions sent the stolen bitcoin to a digital wallet under Lichtenstein’s control. Over the last five years, approximately 25,000 of those stolen bitcoin were transferred out of Lichtenstein’s wallet via a complicated money laundering process that ended with some of the stolen funds being deposited into financial accounts controlled by Lichtenstein and Morgan. The remainder of the stolen funds, comprising more than 94,000 bitcoin, remained in the wallet used to receive and store the illegal proceeds from the hack.”

“After the execution of court-authorized search warrants of online accounts controlled by Lichtenstein and Morgan, special agents obtained access to files within an online account controlled by Lichtenstein. Those files contained the private keys required to access the digital wallet that directly received the funds stolen from Bitfinex, and allowed special agents to lawfully seize and recover more than 94,000 bitcoin that had been stolen from Bitfinex. The recovered bitcoin was valued at over $3.6 billion at the time of seizure.”

Notably, the amount seized corresponds to a series of transactions of Bitfinex hack-tied BTC on February 1.  

This breaking news story 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.

Quick Take

• In January 2022, fintechs raised $10.7 billion globally — this is a 45% increase from the same time period of the previous year.  
• Fintechs have kicked off the start of the year with a bang in the private sector despite a wobbly performance from fintechs in the public market. 

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Robo advisor Betterment is entering the crypto space through the acquisition of Makara, a crypto portfolio-focused robo advisory firm.

A spokesperson for Makara declined to disclose the transaction amount, but as part of the deal, Makara’s employees will join Betterment when it closes. The deal is expected to close later this quarter.

“We developed Makara to bring an easy and accessible long-term investing approach to cryptocurrencies. Combining our crypto expertise with Betterment’s scale will accelerate the growth of the platform with both retail investors and financial advisors,” Jesse Proudman, Makara’s co-founder and CEO, said in a statement.

Sarah Levy, Betterment’s CEO, said in a separate statement that “crypto is here to stay and Betterment wants to live our promise of long-term diversification and to provide our customers with the best variety of assets in the marketplace.”

“Makara is unique in offering consumers managed crypto portfolios combined with the guidance and ease-of-use that have defined Betterment,” Levy said. 

In September, Betterment raised $160 million in growth capital to boost its core retail investment products and advisor services. 

Other robo advisors with a crypto focus have drawn venture capital attention, including Stacked, which raised a $35 million funding round in December backed by Alameda Research, Fidelity International and Jump Capital, among others. 

© 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.

One member of Congress has noted a major outlier among stablecoins, a topic that’s top of mind on Capitol Hill these days.

“Tether, for example, is a time bomb,” said Warren Davidson (R-OH), speaking to The Block on the financial risks posed by stablecoins. 

“There isn’t transparency or disclosure there. They acknowledge that they have commercial paper, but they don’t disclose what exactly that is. That’s where I think that a framework that compels disclosure does provide investor protection.”

Referring to a controversial Securities and Exchange Commission enforcement action, Davidson said: “Regulators ought to get their arms around Tether. There’s, frankly, more reason for the SEC to be looking at Tether than for them to be looking at Ripple and XRP.”

Especially significant is the fact that Davidson is far from an alarmist when it comes to crypto policy. He has, rather, been one of crypto’s biggest advocates on the Hill since replacing John Boehner as the representative for Ohio’s 8th district in 2016. 

Davidson is a member of the Congressional Blockchain Caucus as well as the House Financial Services Committee, which later today will be reviewing a report on stablecoins from the President’s Working Group on Financial Markets. Nellie Liang, the Treasury’s undersecretary for domestic finance, will be guiding that hearing, likely to push for the PWG’s request that Congress limit stablecoin issuance to insured depository institutions — meaning banks, primarily.

It’s a framework that has received bipartisan pushback. Davidson, for example, was not on board with the restriction to insured depository institutions. Democratic staffers have likewise noted that their representatives don’t like the idea of advantaging incumbent banks.

But while the specific framework for regulating stablecoins remains unsettled, Tether, the largest stablecoin operator, remains the proverbial elephant in the room. Long criticized for its approach to operational transparency, Tether has also been notably absent from policy discussions within the US, even those that involve competing stablecoin issuers. 

Sherrod Brown, the Senate Banking Committee’s chair, recently ran into issues contacting Tether over their practices. Tether is currently locked in a legal fight with CoinDesk over details of a recent settlement with the New York Attorney General, a settlement that barred the firm and sister exchange Bitfinex from operating in the state. 

A representative for Tether recently told The Block that “Unfortunately, as Bitfinex does do not do business in the US we do not interact with US-based journalists.” Another representative had not returned a request for comment as of 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.

Metaverse avatar platform Ready Player Me is releasing a collection of 10,000 unique 3D avatars geared toward CryptoPunks NFT owners, with the idea of giving them a new level of utility.

The Ready Player Me avatars, called Ready Player Me Punks, can be used on various virtual worlds and will grant owners access to 1,000 companies integrating their avatars into apps and games, including VRChat, Somnium Space, TCL and Hiberworld. The company first teased the launch in late December; as noted at the time, the project has no official affiliation with Larva Labs, which created CryptoPunks. 

The avatars will possess attributes of the original CryptoPunks collection, featuring unique badges with Punk’s attributes. CryptoPunks and Ready Player Me Punks are separate collections, meaning a punk owner can “monetize” their CryptoPunk by buying the 3D version and then selling it to someone else for a higher price.

Avatars will be available for a minting price of 0.33 ETH, and half the revenue (including sales on the secondary market) will go to developers behind the apps and games compatible with the Punks and other NFT-based assets.

In December, The Block covered that Ready Player Me raised $13 million in Series A funding to let users create a single avatar to use across virtual platforms. Investors included Taavet+Sten, the co-founders of Wise and Teleport, with participation from Tom Preston-Werner, the co-founder of GitHub, Samsung Next, and others.

According to the company, in January 2020, Ready Player Me had 25 companies using their avatars, and that number has risen to 1,000 as of this year. The avatar platform has partnered with brands such as Dior and New Balance.

© 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 demand for crypto derivatives is taking flight as yield-hungry investors hunt opportunities in the face of macroeconomic headwinds.

Shifting Winds: Spots to Derivatives 

Spot trading may have been crypto’s “OG” but the winds have shifted to make way for a new leader — derivatives. With derivatives volumes hitting 1.5 times the size of the spot market in 2021, the derivatives market emerged as an indicator for price movements, similar to traditional finance.

“Recently, what we’re finding is that the derivatives market is now the velocity of the price moves,” said Omid Zadeh, Head of Business Development EMEA, Matrixport.

Derivatives’ popularity lies in its leverage potential where investors can manage risk and trade at a lower cost with less capital. The market cycle has evolved and with derivatives’ soaring rise, looking at derivative volume patterns has now become an indication of who’s buying in the space. 

Piloting the Demand 

Institutional interest in the space has also seen significant growth. Particularly, after the large crypto price drop offs experienced in the first half of 2021, retail investing took a backseat to institutional participation as traditional forex markets stayed sombre. 

Diving deeper, there are differing preferences within the category, too. From speaking to the TradFi institutions, the observation was a tendency to lean towards trading on US-regulated exchanges whereas, for the crypto-native institutions, they were open-minded in trading across global exchanges where there are alpha generating opportunities.

Looking to the future, the industry foresees that institutional demand, combined with the Futures ETF and the bullish trend, are a “recipe” for increasing derivatives trading volumes at a larger multiple than spot going forward. 

“We are the bridge between the traditional space and DeFi, and bringing that together for institutions in the safest possible manner.” — Omid Zadeh

It’s safe to say that the takeoff of institutional demand is promising — providing opportunities for new crypto offerings and innovation to serve the growing demand.

Navigating Headwinds 

The route to the perception of crypto as mainstream is fraught with some hurdles. 

On this, the harmonisation of regulation to encourage innovation is critical. Crypto stakeholders have a role to play in engaging policy-makers and sharing crypto’s potential use cases. This will ensure that the market continues to grow in a sensible way and opens the doors for more investors. 

While crypto’s foray into the mainstream is highly anticipated, predictions for the outcomes differ. One hand, there are expectations of a transition towards OTC trading as crypto exchanges become overcrowded and more crypto offerings are integrated into TradFi (e.g. institutional spot markets, equity brokerage firms) — making it even easier to trade. On the other hand, there is a strong conviction that crypto exchanges will continue to be a driving force, powered by innovation. 

All that said, there is one thing we know for sure — crypto structured products are taking flight and all those watching need only to enjoy the journey through a hybrid world of CeFi and DeFi. 

© 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.

Komainu, a crypto custodian, has announced the launch of a yield generating service for its cryptocurrency custody clients, the company announced on Tuesday.

Dubbed Komainu Yield, the platform allows the company’s clients to earn yield on the crypto assets held on their behalf by Komainu. The company will stake custodied crypto to earn yields on offer in various proof-of-stake protocols, while still keeping the assets under secure storage.

CoinShares, one of Komainu’s backers, will be the first client to utilize the platform. The cryptocurrency asset manager already secures a pair of crypto exchange-traded products (ETPs) — CoinShares Physically Staked Tezos and CoinShares Physically Staked Polkadot — with Komainu.

As part of the announcement, Komainu President Henson Orser stated that the decision to launch the yield product was to help the company improve its market position amid the pivot towards proof of stake. Orser added that Komainu Yield offers a “secure and transparent” means for clients to earn returns on their stored crypto assets.

While staking is the first avenue explored by Komainu, the company says it has plans to incorporate other yield-generating strategies into the platform.

CoinShares, together with Japanese investment bank Nomura and crypto hardware wallet maker Ledger launched Komainu as a hybrid digital asset custodian in June 2020. The company raised $25 million in a Series A funding round led by hedge fund veteran Alan Howard in March 2021.

© 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 Deposit Insurance Corporation (FDIC) has included evaluating crypto-asset risks on its list of priorities for the year.

Acting Chairman Martin Gruenberg announced the regulator’s 2022 priorities in a statement, saying each will require close collaboration among the federal banking agencies. The priorities include strengthening the Community Reinvestment Act, addressing financial risks posed by climate change, reviewing the bank merger process and finalizing the Basel III Capital Rule in addition to evaluating risks related to crypto.

The rapid integration of digital assets with the current financial system could pose significant risks to its safety and soundness, according to the FDIC. 

“To the extent such activities can be conducted in a safe and sound manner, the agencies will need to provide robust guidance to the banking industry on the management of prudential and consumer protection risks raised by crypto-asset activities,” said the statement.

In October of last year, previous FDIC chair Jelena McWilliams said the agency was focused on creating “clear guidance” for the intersection of crypto and banking. She touted the collaboration among US bank regulators, including a so-called “sprint” on crypto regulation between the FDIC, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve.

McWilliams has since left her post as chair of the FDIC. In the lead up to her departure, she had significant disagreements with her colleagues over the FDIC’s merger review process. Though, her departure statement made no mention of the issue. Gruenberg stepped in to fill the post as of February 5. 

© 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.

Aave’s long-in-the-making protocol for a decentralized social media ecosystem was unveiled on Monday.

Dubbed Lens Protocol, the project is described as “[a] permissionless, composable, & decentralized social graph that makes building a Web3 social platform easy.”

The Block profiled Aave’s efforts on this protocol in a feature last summer. As noted at the time, Aave, the team behind the decentralized finance lending protocol, has dedicated significant resources to the social media project since the beginning of 2021. A tweet from January 20 teased Monday’s debut.

Originally pitched as a way to create a kind of Twitter-on-Ethereum, the project now known as Lens has since grown in scope, with the goal of supporting a range of social media platforms on a shared protocol layer. Per the announcement thread, non-fungible tokens lie at the heart of Lens: “Profile NFTs are the main primitive of the Lens Protocol. These dynamic NFTs are composable, non-custodial & permissionless. Individual addresses can own profile NFTs, an address can have multiple profile NFTs & a profile NFT can be owned & run by a DAO via a multisig wallet!”

According to the project’s official Twitter account, Lens is live on the Polygon Mumbai testnet, with plans for an alpha mainnet launch at a yet-to-be-disclosed 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.

The Recording Industry Association of America (RIAA) sent a demand letter to the attorneys of the music platform HitPiece insisting the platform cease and desist from selling non-fungible tokens (NFTs) sales. 

In a demand letter, an attorney writes a letter urging the recipient to perform a certain action. The RIAA demanded that HitPiece halt infringing on the intellectual property rights of musicians and take responsibility for selling NFTs of music without the original artist’s consent. 

RIAA Chief Legal Officer Ken Doroshow wrote in the letter, from February 4: 

“HitPiece appears to be little more than a scam operation designed to trade on fans’ love of music and desire to connect more closely with artists, using buzzwords and jargon to gloss over their complete failure to obtain necessary rights. Fans were led to believe they were purchasing an NFT genuinely associated with an artist and their work when that was not at all the case. While the operators appear to have taken the main HitPiece site offline for now, this move was necessary to ensure a fair accounting for the harm HitPiece and its operators have already done and to ensure that this site or copycats don’t simply resume their scams under another name.”

As The Block previously reported, music fans and artists slammed HitPiece for selling NFTs of artists’ work without their consent. HitPiece then apologized to its audience and pulled its marketplace off its website. HitPiece claimed in the apology to properly compensate artists in NFT sales, but the platform did not explain to The Block how artist payment worked upon request.

© 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.