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Author: Igor Igamberdiev
Last week, Pinata Technologies, Inc., the NFT media management company, celebrated its third anniversary as a company in the pioneering Web3 space. The company’s vision to foster a sense of place for every creator on the internet is coming to fruition as each year proves more successful than the previous.
A Brief History
In 2017, co-founders, Kyle Tut and Matt Ober met in Omaha, Nebraska to begin the early concepts of Pinata. There was a need for a tool that stored blockchain data to the Interplanetary File System (IPFS). In 2018, they participated in ETH Berlin and won the hackathon with Pinata’s earliest prototype. In 2019, they continued building out the Pinata product through relationships with NFT builders and developers at other hackathons.
“During this time, we saw early inklings that NFTs were an important concept, but the NFT market was still nonexistent,” shared Kyle Tut, CEO and co-founder.
In the spring of 2020, when many were in lockdown during the early days of the pandemic, the team noticed more activity happening within the metaverse. The problem was many builders still didn’t know where to store their data for these virtual places. Kyle wrote the blog, ‘Who is Responsible for NFT Data’ in April 2020, which became a popular resource amongst many builders in the space on not only how to use Pinata for content storage, but also how to think about the potential uses and applications of NFTs.
From there, NFTs began to explode in late 2020 into 2021, emphasizing the need for a tool like Pinata to help store, manage, and share data made by developers and creatives.
Growth by the Numbers
In just three short years, Pinata has become one of the most trusted names in the NFT space. Widely known among creators and developers for its easy and seamless use to manage all sorts of data, the platform has become an essential part of building applications and now powers some of the top marketplaces for NFT trading.
Pinata proudly serves more than 90,000 users worldwide and has more than 55 million files pinned to IPFS servers through their platform. In just the last 30 days, Pinata serviced more than 1.2 billion requests of data totaling more than 770 terabytes of data.
The fully-remote team continues to see growth as a company, as well. In just 2021 alone the team doubled in size with over 15 members across North America and Europe, and are still actively hiring for roles across all departments.
To celebrate, the company is giving away 1 ETH to a lucky follower on their Twitter account between December 1st and 31st of this year. There is no purchase necessary. And all applicants must be US residents and over the age of 18. To learn more, apply, or see the full terms and conditions of this giveaway visit: Pinata’s Bday Giveaway – WIN 1ETH.
© 2021 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.
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Author: Sponsored
Over the last three years as a senior associate at Insight Ventures, Evan Fisher made 15 to 20 investments, cutting checks from as little as $5 million to hundreds of millions of dollars. He backed companies such as Philippines super app Gcash, Indian fintech company CRED and payments gateway Checkout.com.
This experience put Fisher on track to achieve his goal of becoming an investment banker at Goldman Sachs.
Yet throughout his time at Insight Ventures, he became super focused on emerging markets, whether that was India or other countries in Southeast Asia. And one type of market in particular that kept cropping up was crypto.
“In 2020, I asked the question to the senior partners: What’s our crypto strategy and there was none at the time,” Fisher said in a recent interview with The Block.
That swiftly changed. Soon, the VC started investing in crypto-focused companies like tax software maker Taxbit, exchange platform FTX and wallet developer ZenGo. Fisher found that crypto deals tended to have more explosive growth and soon found himself focusing all of his time on crypto.
But the fund’s size —some $30 billion — made it harder to operate at the scale and speed that’s right for the rapidly moving industry.
On this basis, Fisher put aside his investment banking pursuits and has now left Insight Ventures to start his own crypto fund, dubbed Portal Ventures. Fisher’s goal with the new fund is to get as early stage as possible, cutting small checks between pre-Seed and Series A.
Fisher says he left due to a realization that a fund’s size dictates its strategy.
“By that I mean by being solo I can write a $1 million check that has real skin in the game. Versus if you’re doing this at a much larger scale with a multi-million fund, it’s really hard to go that early,” he explained.
So far, Fisher has soft commitments of $30 million for the fund. He is doing the first close this month and aims to close the whole amount by January.
Right now, the fund is just him, a self-described nomad who’s spent the last year living between Mexico City, Hawaii, London and Latin America. But he says, if it makes sense to add other partners or investors, he will do just that.
When it comes to fund strategy, Fisher is taking an open-minded approach.
“I don’t want to be dogmatic. I don’t want to come out and say it’s an NFT fund or a DeFi fund or a DAO fund. Instead I’m focused on crypto business models and understanding what makes durable businesses in crypto,” he says.
Fisher says his role at Insight Ventures was very hands-on and a key thing he enjoys is helping companies to scale. “The ecosystem is saturated with investors that have incredible knowledge of token economics, of mechanism design, that can help audit your code. What’s missing is the company building.”
When it comes to investing, he’s open to both equity and tokens, a hallmark of many crypto investments. He says that he views tokens and equity as part of the technology in which he’s investing.
Fisher highlights that many traditional venture funds are throwing money at crypto businesses but doing so in the wrong way.
“Right now, you’re seeing a lot of traditional venture funds realize that they’re very underweight crypto. You’ll see a lot of people allocate capital to this because they need exposure to it as an asset class. I think that’s dangerous. Incredibly dangerous. Because you should be investing due to a thesis, not off of some portfolio construction that you need to work toward as an ideal,” he says.
Going out on his own while the market is booming carries one possible concern: that we could enter into a bear market. Fisher says that his strategy will be to back the most durable founders and to focus on projects they should create revenue over the long term, those that should ideally be more resilient to a bear market.
“I’m focused on understanding the aspects of a crypto project that will make it durable and economically generative over the long term. Those are assets that capital should flock to in a bear market and should be a bit more resistant,” he says.
And if there is a bear market, from an investing standpoint, that could create even more opportunity — with greater upside.
© 2021 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.
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Author: Tim Copeland
Hashed, a crypto venture capital firm based in South Korea, has confirmed to The Block that it is under investigation by the National Tax Service (NTS).
Earlier today, Korean news outlet Aju News reported that Hashed is under a “special” tax investigation by the 4th Bureau of Investigation from the Seoul Regional Tax Office within the NTS. This bureau is particularly known for conducting investigations into tax evasion and slush funds, per the report. A slush fund refers to a sum of money reserved for specific purposes in a business. Oftentimes, slush funds are not accounted for and used for personal gains or unlawful purposes.
A “high-ranking” NTS official did not confirm the Hashed investigation to Aju News but they said the agency does not start an investigation against a small firm unless it is related to tax evasion or a slush fund by a company’s CEO.
But Edward Hong, head of growth at Hashed, told The Block that the investigation is not related to tax evasion or slush funds. He said “it is impossible to evade taxes or create slush funds in the first place” because there is currently no obligation to pay crypto taxes by individuals in South Korea.
Crypto taxation for individuals in South Korea was originally scheduled to be implemented from January 2022 but has now been deferred by one year to January 2023.
But isn’t Hashed a corporation and not an individual? Hong said Hashed invests in crypto through its proprietary funds, which are fully owned by individual co-founders of the firm, and thus it will be liable to pay taxes as individuals and not as corporations. Corporations are anyway prohibited from investing in crypto in South Korea, he said.
The Hashed investigation started last month, said Hong, adding that it could end early next year. It is unclear what information the NTS has sought from Hashed, but Hong said the firm is cooperating with the investigation.
The news comes a few days after Hashed launched its second crypto fund worth $200 million to invest in Web3 startups, such as those focused on the Metaverse and DeFi. The firm was founded in 2017 and launched its first fund last year, worth $120 million.
It is unclear whether the investigation will lead to any legal proceedings against Hashed. The tax authority has conducted investigations into several crypto firms this year, including HN Group (the issuer of the HDAC token), Korea Digital Exchange (the operator of the local cryptocurrency exchange Flybit), ICONLOOP, Ground X, and Terra.
© 2021 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.
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Author: Yogita Khatri
Good morning. Here’s what’s happening this morning:
Market moves: All eyes were on the Chinese stock market, as bitcoin funding rates on Chinese derivatives exchanges slowly recovered from negative territory.
Technician’s take: Bitcoin was stabilizing above its 20-day average two days after its 20% plummet.
Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis.
Bitcoin (BTC): $50,509 +2.3%
Ether (ETH): $4,324 +3.1%
S&P 500: $4,591 +1.1%
Dow Jones Industrial Average: $35,227 +1.8%
Nasdaq: $15,225 0.9%
Gold: $1,778 -0.2%
Bitcoin inched up on Monday two days after plummeting 20%, and at one point neared $51,000. The largest cryptocurrency by market capitalization was trading well over $50,000 at the time of publication. Trading volume was even lower than a day ago across major centralized exchanges. Ether was up over 3% to $4,324.
According to Singapore-based crypto trading firm QCP Capital, bitcoin’s average funding rate, or the cost of holding long positions in the perpetual futures listed on exchanges popular among Chinese traders, including Huobi, OKEx and Bybit, recovered from negative territory much more slowly than the funding rate on other major exchanges such as Deribit. (Exchanges calculate funding rates every eight hours.)
“This indicates persistent selling out of China,” QCP Capital wrote in its Telegram channel on Monday, citing “bad news” from China, including China ride-hailing giant Didi’s announcement to delist from the New York Stock Exchange. Other Chinese tech stocks tumbled following the news, as investors worried that other Chinese tech firms would be pressured to follow Didi’s move.
Meanwhile, China real estate giant Evergrande Group’s stocks and bonds both fell to historically low levels, as the Chinese government stepped up its involvement in the company’s management. The deeply indebted Chinese real estate developer has been an important factor in the performance of crypto and broader financial markets, CoinDesk has reported previously.
Bitcoin Drops Below $56K as Momentum Slows, Support at $53K
Bitcoin is stabilizing above its 200-day moving average, currently at $46,000, after a nearly 20% sell-off over the weekend. The cryptocurrency was roughly flat over the past 24 hours, and was trading at around $49,000 at the end of the New York trading session. BTC is down about 15% over the past week.
The relative strength index (RSI) on the daily chart is the most oversold since July, which preceded a strong price recovery. Still, oversold conditions could persist for several days as sellers gradually exit positions.
BTC is poised for a short-term bounce, although upside appears to be limited toward the $55,000-$60,000 resistance zone. Over the long term, weekly momentum indicators have shifted negative for the first time since April, which preceded a brief crypto bear market.
8:30 a.m. HKT/SGT (12:30 a.m. UTC): Australia house price index (Q3 YoY/MoM)
10 a.m. HKT/SGT (2 a.m. UTC): China exports of goods and services (Nov. YoY)
10 a.m. HKT/SGT (2 a.m. UTC): China imports of goods and services (Nov. YoY)
10 a.m. HKT/SGT (2 a.m. UTC): China trade balance (Nov.)
1 p.m. HKT/SGT (5 a.m. UTC): Japan leading economic index (Oct.)
In case you missed it, here are the most recent episodes of “First Mover” on CoinDesk TV:
“First Mover” dove into crypto markets to discuss what happened over the weekend when bitcoin and altcoins suddenly dropped dramatically. Rufus Round, CEO of GlobalBlock Digital Asset Trading, shared his analysis and outlook. Also, Sky Mavis co-founder and CEO Trung Nguyen spoke about Axie Infinity’s popularity and the future of non-fungible token (NFT) gaming.
Craig Wright Found Not Liable for Breach of Kleiman Business Partnership: A jury ruled Wright must pay $100 million to W&K Info Defense Research but cleared him of all other charges.
Japan Moves to Impose New Regulations on Stablecoin Issuers: Report: The country is reportedly moving to introduce legislation in 2022 to limit the issuance of stablecoins to banks and wire transfer companies.
Crypto Mining Stocks Extend Declines as Bitcoin, Ether Prices Fall: However, D.A. Davison sees mining stocks as a better buying opportunity than bitcoin itself.
Wrapped Bitcoin’s Supply Has More Than Doubled, but BadgerDAO Hack Exposed Risks of Moving Bitcoin to Ethereum: Higher returns usually come with higher risks.
Gemini to Allow Crypto Trading in Colombia Under Government-Sponsored Pilot Program: The company plans to offer bitcoin, ether, litecoin and bitcoin cash trading in partnership with local bank Bancolombia starting in December.
Miami’s Multiple Money Visions: This week’s big NFT event showed an innovation moment in full swing (even if many of the ideas on show are unlikely to make it).
Olympus DAO Might Be the Future of Money (or It Might Be a Ponzi): Right now, it’s a money game. One day it could be the backbone of all of decentralized finance (DeFi).
The Big Miss in the Biden Administration’s Stablecoin Report: We know that banks will not continue to rule the payments landscape. So why give them control over stablecoins?
Today’s crypto explainer: What Are Bitcoin Mining Pools?
Other voices: Bitcoin Buyers Flock to Investment Clubs to Learn Rules of the Road
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Author: Muyao Shen, Damanick Dantes
Investment firm Andreessen Horowitz (a16z) announced Monday that it invested in Mysten Labs, a blockchain and Web3 development company co-founded by four ex-Meta employees. CNBC first reported the investment figure to be $36 million.
The CEO of Mysten Labs is Evan Cheng, former director of research and development (R&D) at Novi — a digital wallet project formed out of the tech company Meta (previously known as Facebook). Joining Cheng at Mysten Labs is Sam Blackshear, former Novi engineer, as CTO; Adeniyi Abiodun, former Novi product lead, as COO; and George Danezis, former Novi engineer, as Chief Scientist.
All four Mysten Labs co-founders helped develop Diem, a stablecoin to be used in the Novi digital wallet, as well as other projects during their time there. Moving forward, the team intends to bolster partnerships with existing networks and launch additional protocols that Mysten helped design, according to a release from a16z.
The news of four ex-Meta employees starting their own company comes nearly a week after David Marcus, former Novi lead at Meta, announced his forthcoming departure from the firm by the end of the year.
© 2021 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.
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Author: MK Manoylov
The Kleiman v. Wright trial has come to a close, with the jury deciding in favor of defendant Craig Wright on all but one of the seven counts against him.
The jury found that Dave Kleiman was not a partner in the creation of the Bitcoin network under the name Satoshi Nakamoto, and therefore not entitled to any portion of the billions of dollars in Satoshi’s bitcoins.
Wright will not have to pay up the billions that the Kleiman estate hoped, but he was hit with a $100 million judgment against him for the unauthorized use of funds from Kleiman and Wright’s shared venture, W&K Info Defense Research LLC.
Wright has been locked in a legal battle with the estate of his deceased partner since 2018. The Kleiman estate claimed Wright fraudulently attempted to seize David Kleiman’s share of bitcoins and intellectual property incurred during an alleged business partnership between the two. One such venture included the alleged creation of Bitcoin, with Wright saying that he himself is the pseudonymous creator of Bitcoin, Satoshi Nakamoto.
Though considerable evidence has cast doubt on these claims, including a number of forged documents uncovered as part of this legal dispute, today’s judgment does mean the Court recognized Wright as the sole creator behind the Satoshi Nakamoto project. However, whether Wright actually is Satoshi was not a debated question of the case. Rather, the case assumed Wright had invented Bitcoin, and instead asked whether Kleiman and Wright were partners together behind the invention of Bitcoin or just Wright alone.
Dave Kleiman’s brother, Ira Kleiman, was the driving force in suing Wright. Ira claimed his brother was entitled to 1.1 million bitcoin — worth $10 billion when the suit was first filed in 2018 — of the Satoshi fortune and intellectual property for his role in the creation. While Wright acknowledged Dave Kleiman as a frequent collaborator and friend, he argued his involvement was not sufficient enough to constitute a business partnership when it came to the creation of Bitcoin.
The jury, eventually, agreed with Wright. It took a number of days to reach a consensus, considering closing arguments were delivered on Nov. 24 and the group spent days in deliberation. Judge Beth Bloom eventually issued an Allen Charge, which instructs a deadlocked jury to reach a verdict, encouraging those in the minority to reconsider their position.
However, it did side with the plaintiff on the count of conversion, which is the unauthorized use of funds that don’t legally belong to the person — effectively stealing. The jury awarded $100 million with no punitive damages.
But the jury didn’t find Wright wrongfully claimed Kleiman’s funds, it found he wrongfully took bitcoin-related funds from their joint company, W&K Info Defense Research.
Ira Kleiman sued Wright using W&K, but it’s unclear if the Kleiman estate was authorized to do so. Lynn Wright, Wright’s ex-wife, claims that she owns the majority of W&K shares, and any suit lodged in the business’ name was unauthorized. In a separate case, Lynn Wright petitioned the Court to determine who the ownership of W&K and declare the Kleinman v. Wright lawsuit an unauthorized use of the business. A judge ordered to stay the case until the conclusion of Kleinman v. Wright. That decision could have significant implications for who receives the $100 million. Wright himself told CoinDesk that the verdict means he owes his ex-wife money.
Craig Wright said in the bitcoin slack channel that he considers the $100 million judgment against him a “win” considering a previous settlement offer would have had him paying $3.2 billion in total. He told Law360 that he’s “incredibly relieved” by the verdict and does not intend to appeal.
The Kleiman estate won’t be able to access the $100 million going to W&K without an additional legal battle. He’ll need a court to find that he does have an interest in W&K.
© 2021 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.
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Author: Aislinn Keely
MIAMI – A federal jury found that Craig Wright, the Australian who claims to have invented Bitcoin, didn’t have a business partnership with deceased Florida computer forensics expert Dave Kleiman, but he does owe $100 million in compensatory damages for conversion to a company Kleiman founded in Florida, W&K Info Defense Research.
“I feel remarkably happy and vindicated,” Wright said in the courtroom hallway after the verdict was announced. “I am not a fraud, and I never have been.” He added that he had offered Kleiman’s estate, represented by Dave’s brother Ira Kleiman, “12 million many years ago, which if he had taken that then in bitcoin, when bitcoin was $200, and he kept it – you can do the math.”
Wright testified that he was friends with Dave Kleiman and that Kleiman helped him edit a white paper that explained the foundation of Bitcoin, but he insisted the two weren’t business partners. Dave Kleiman died in 2013, and his brother brought the federal civil lawsuit on behalf of Dave Kleiman’s estate and W&K.
Of the verdict against W&K, Wright said it means that “I owe my ex-wife more money.” He was referring to the fact that Ira Kleiman’s control of W&K is being challenged in court in Palm Beach County, where Wright’s ex-wife, Lynn Wright, and current wife, Ramona Watts (she filed as Ramona Ang), each claim to control a third of W&K and are suing Ira Kleiman, alleging he didn’t have authority to bring the federal suit. Those cases have been on hold pending the outcome of the federal suit.
The jury wasn’t asked to decide on the identity of Satoshi Nakamoto, the pseudonymous creator of Bitcoin. Both sides in the suit based the suit on the assumption that Wright was either entirely or partly responsible for the creation of the cryptocurrency, with Wright’s defense stating he alone created Bitcoin and Kleiman’s side arguing that it was a partnership between Wright and Dave Kleiman. Wright’s claims to be Satoshi, however, have been widely discredited and none of them was tested in court.
Vel Freedman, an attorney for the plaintiffs, said his team, too, was happy with the verdict: “We just won $100 million!”
It was far short of what he had asked for: up to $36 billion for the value of bitcoin in dispute, $126 billion for intellectual property and $17 billion in punitive damages.
With his fellow attorneys, Kyle Roche and Andrew Brenner, Freedman issued the following statement:
We are immensely gratified that our client, W&K Information Defense Research LLC, has won $100,000,000 reflecting that Craig Wright wrongfully took bitcoin-related assets from W&K. Many years ago, Craig Wright told the Kleiman family that he and Dave Kleiman developed revolutionary Bitcoin based intellectual property. Despite those admissions, Wright refused to give the Kleimans their fair share of what Dave helped create and instead took those assets for himself. This verdict sets a historical precedent in the innovative and transformative industry of cryptocurrency and blockchain. Our firms, Roche Freedman and Boies Schiller Flexner, are honored they represented the Plaintiffs, protected Dave Kleiman’s legacy, and ensured his family receives the benefits of his labor.
Read More: Kleiman v. Wright: Bitcoin’s Trial of the Century Kicks Off in Miami
During the jury’s fifth week in the courtroom, it decided Wright and Dave Kleiman weren’t in a business partnership, and thus the plaintiffs aren’t owed a portion of the partnership’s assets, which the plaintiffs believe to include about 1.1 million BTC and intellectual property such as software.
The jury did rule that Wright owes W&K Info Defense Research $100 million for intellectual property, but didn’t define what intellectual property it believed Wright converted. Over the course of the trial, both the plaintiffs and Wright’s defense team described a variety of projects, including “testnet bitcoins” and white papers on subjects, including hard drives and supercomputers, as intellectual property owned by W&K.
The jury was asked to consider damages in both bitcoin and dollars, but chose to award the $100 million in damages in fiat currency alone, writing “0 BTC” on the line for bitcoin damages.
Conversion is a form of theft that involves taking unauthorized control of another’s property.
The jurors were asked to evaluate whether they believed:
Ultimately, the jury found Wright not liable for the majority of the charges.
Ira Kleiman wasn’t in the courtroom today but told CoinDesk last week as the case dragged on, “I’m depressed. We thought they would return a favorable verdict in a day.”
Ira Kleiman is a quiet man who has largely avoided the press, while Wright has a host of supporters who are active online. Feeling that his side of the story had been drowned out, Ira Kleiman added a section to the website DaveKleiman.com highlighting details from exhibits in his court case that he hoped readers would see.
That included emails Craig Wright wrote to various people, saying things like, “Dave Kleiman and I started mining in 2009. So we have a few things that will interest them. It is a shame Dave died last year before fruition, but all is moving ahead”; “I was not the person doing the mining. Dave was.”; and “Satoshi was a team. Without the other part of the team, he died.”
Ira Kleiman was frustrated that given such pronouncements, the jury hadn’t easily found in his favor.
His own lawyers, however, had spent much of the trial insisting that Wright forged and backdated documents – a position backed up by a magistrate judge overseeing the case before the trial began in November.
In August 2019, Bruce Reinhart, the judge, issued a sanctions order against Wright, stating:
“The evidence establishes that he has engaged in a willful and bad faith pattern of obstructive behavior, including submitting incomplete or deceptive pleadings, filing a false declaration, knowingly producing a fraudulent trust document, and giving perjurious testimony at the evidentiary hearing.”
The sanctions order was vacated by U.S. District Judge Beth Bloom, the presiding judge, before the trial began.
Wright’s defense team accused plaintiffs of “cherry-picking,” presenting the documents that fit their narrative as legitimate and others as forged.
It was clear the jurors were uncomfortable making decisions in the case. On Wednesday they said they couldn’t agree on any of the counts, but Bloom directed them to continue deliberating.
Wright told CoinDesk last week that Ira Kleiman would have trouble collecting any verdict awarded to W&K, as his ex-wife and an entity tied to him own two-thirds of the company – a matter that is being litigated in court in Palm Beach County.
BSV, the offshoot of bitcoin Craig Wright is involved in, rallied as much as 13% Monday following the resolution of the Kleiman case.
Catch up on the trial here:
In Craig Wright Trial, Plaintiffs Lay Out Pattern of Fraud, Deceit and Hubris
Day 4 of Kleiman v. Wright: Craig Wright’s Testimony Delayed
Day 7 of Kleiman v. Wright: Wright Tells Jury Kleiman Only Mined ‘Testnet’ Bitcoins
Kleiman v. Wright Trial: Craig Wright’s Flinty 4-Day Testimony Comes to an End
Kleiman v. Wright: The Trial Transitions From Plaintiffs to the Defense
Kleiman v. Wright: A Story of Physical and Financial Tribulation
Kleiman v. Wright: Defense’s Autism Expert Explains His Diagnosis of Craig Wright
Kleiman v. Wright: Craig Wright Takes Stand Again in Final Day of Testimony
Kleiman v. Wright: Jury Deliberations Continue in Week 2
Jury in Kleiman v. Wright Civil Suit Says It ‘Cannot Come to a Decision’
UPDATE (Dec. 6, 2021, 18:06 UTC): Updated with additional context, including BSV price movement.
UPDATE (Dec. 6, 2021, 18:23 UTC): Updated with additional context, including a revised statement from the plaintiff’s legal team.
UPDATE (Dec. 6, 2021, 18:35 UTC): Updated with additional context on the background of the case.
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Author: Cheyenne Ligon, Deirdra Funcheon
Last week’s hack on decentralized finance (DeFi) protocol BadgerDAO put a major but less talked-about cryptocurrency in the spotlight once again.
Wrapped bitcoin, an ERC-20 token on the Ethereum blockchain that is collateralized 1-to-1 with bitcoin, has more than doubled its supply from a year ago, as traders and investors seek alternative high-yield opportunities in DeFi.
The rapidly growing demand for WBTC comes as yields for bitcoin borrowing and lending have grown less competitive compared with the lucrative DeFi lending market. But the hack on BadgerDAO, which focuses on high yields on wrapped bitcoin, has raised concerns around the security of moving bitcoin to the Ethereum blockchain. The hack led to the loss of 2,100 bitcoins at an estimated value of $118 million, China-based blockchain security and data analytics firm PeckShield wrote in a Dec. 2 tweet.
According to data compiled by user @Messari_Jack on Dune Analytics, the total supply of WBTC was roughly 253,876 on Dec. 1, up from 112,948 at the end of 2020. The top WBTC merchants for minting WBTC include Alameda Research, CoinList, Grapefruit Trading and Three Arrows Capital. Alameda alone has minted more than 9,6547.2 WBTC.
The total value locked in WBTC stands at roughly $12.53 billion, the fifth-largest DeFi protocol by TVL, according to DeFi Llama. TVL represents the dollar value of all tokens locked in the smart contracts of a decentralized lending project.
“It turns out that it’s currently easier to borrow and lend with WBTC than BTC since users can interact with DeFi lending protocols like Compound, Aave and Maker to lend their WBTC and borrow USDC, dai, or other assets against it,” Joe Keefer, a trader at Grapefruit Trading, one of the biggest WBTC merchants, told CoinDesk on Telegram. “There are also many opportunities to use WBTC directly in yield farming.”
On centralized lending platforms such as BlockFi and Celsius, the interest rate for bitcoin borrowing was as high as 6.20% at the time of publication, far lower than the rates from the lucrative yield farming on DeFi protocols using different trading strategies.
Instead of going to a centralized lending platform, traders can, for example, use WBTC as collateral on the MakerDAO platform to mint Maker’s own stablecoin, dai. The WBTC-generated dai could be used for many purposes, including lending dai at interest, as CoinDesk has reported.
“The yields on bitcoin are very low,” Dan Burke, managing director for institutional sales at crypto custody company BitGo, told CoinDesk via a direct message. With WBTC, “you can put it into any Ethereum-based DeFi pool or DEX [decentralized exchange].”
However, greater rewards often come with greater risks as the BadgerDAO exploit showed.
According to BadgerDAO’s official website, the protocol offers its users several automated strategies to earn yield on bitcoin-pegged assets, including WBTC and its own interest-bearing bitcoin (ibBTC).
Crypto lender Celsius Network confirmed that it lost money from the hack without disclosing the exact value of the loss. By tracking blockchain data, some observers estimated Celsius’ loss at roughly $51 million via WBTC, but Celsius CEO Alex Mashinsky said in a YouTube livestream that the lost funds belonged to the company and that no users had lost money from the hack.
“It was a Badger hack, but some of the Celsius funds were there, so Celsius lost money,” Mashinsky said. “But none of the Celsius members lost money.”
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Author: Muyao Shen
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