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Quick Take

• Polygon (formerly Matic) was founded in 2017 by Jaynti Kanani, Sandeep Nailwal, Anurag Arjun, and Mihailo Bjelic to provide a scaling solution and framework for Ethereum-compatible blockchain networks
• As of May 21, 2021, roughly $6.5 billion of Ethereum and Ethereum-based tokens were locked within smart contracts on Polygon
• In total, The Block has identified 356 projects and companies across 13 different verticals currently expanding on Polygon’s ecosystem

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Da Vinci Capital has reportedly filed suit against Telegram in a London court, looking to get back the money its investors had put into GRAM tokens that never launched.

In a Monday interview with RBC, Da Vinci’s managing partner Oleg Jelezko said that the firm was suing the messenger app. The suit follows a request that Da Vinci made to Telegram at the end of February for a return of funds that got caught up in a legal dispute between the U.S. Securities and Exchange Commission and the would-be token issuer. 

Back in 2018, Telegram managed to sell purchase agreements for $1.7 billion worth of GRAM tokens, which were to be the native currency of the Telegram Open Network. Unfortunately for the messenger app, the SEC issued a cease and desist on the eve of the network’s launch in October 2019, beginning a legal battle that would ultimately shut down the network and require Telegram to return $1.2 billion.

Over the course of that legal battle, Telegram’s investors faced conflicting and confusing information, compromising their ability to make reasonable decisions with their money, Jelezko told RBC.

Based in Moscow and registered in Guernsey, Da Vinci Capital specializes in private investment in tech firms. Through subsidiary Disruptive Era Technologies, Da Vinci gathered 50 investors and agreed to purchase $72,136,000 worth of GRAMs, ultimately making payments of $45.4 million to Telegram, per filings from the SEC in its suit against Telegram.

Da Vinci’s suit has yet to appear in London court records as of publication time. RBC’s sourcing says it requests compensation of some $20 million. In his interview, Jelezko said he anticipated other investors joining with similar claims internationally. 

Telegram’s legal team had not responded to The Block’s request for comment. The number that Da Vinci Capital lists as its London office belongs instead to ITI Capital Ltd. Da Vinci Capital could not be reached for comment. 

© 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.

Ray Dalio, the billionaire founder of hedge fund Bridgewater, identified himself as a holder of bitcoin in a conversation at Consensus 2021 on Monday morning.

Speaking to Coindesk’s Michael Casey, Dalio claimed that we are witnessing a shift away from the dollar as the global reserve currency, a competition in which bitcoin and other digital assets play a major role. “Probably the greatest power that a government has is over its currency and to control where money and credit go,” he said.

Referring to the succession of recent global currencies and the Federal Reserve’s massive quantitative easing over the last year, Dalio said “It’s a great power to be able to print the world’s currency but it happens just  like the British pound happened or like the Dutch guilder happened.”

Much of Dalio’s commentary focused on the rise of China’s capital markets and trade eminence relative to the U.S. On the subject of bitcoin’s importance, he said it would face more regulatory blowback the more the market grows. “I think bitcoin’s greatest risk is its success,” said Dalio, continuing that it would scare bond-issuing governments “the more we say ‘I’d rather have bitcoin than the bond.'”

Dalio went on to confirm his own bitcoin holdings. “I have some bitcoin,” he said. 

In earlier public statements, Dalio spotlighted problems with bitcoin as a payment mechanism. Today, he was fairly positive on its role as a store of wealth but did not backtrack on those earlier sentiments. He did, however, seem to view China’s development of a central bank digital currency as a major concern for the dollar’s use internationally. “There’s a real economy and there’s a financial economy, and we shouldn’t confuse those things.”

© 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.

The Federal Reserve is expanding its work on central bank digital currencies, with a particular focus on financial and geographical inclusion. 

Lael Brainard, who sits on the Fed’s Board of Governors, spoke at Consensus 2021 on Monday morning. Brainard has been the public face of the Fed’s work on developing a CBDC, which was the focus of her recent remarks. 

“Given the potential for CBDCs to gain importance in cross-border payments and reserve currency roles, it’s vital for the United States to be at the table in developing standards,” said Brainard.

Underlying these concerns is China’s development of a CBDC. Coindesk’s Michael Casey asked Brainard: “Is the China factor in play in terms of how quickly the US should be moving towards a new digital money?” Brainard answered that any development in cross-border payments “does potentially have effects across the globe,” which she said included but was not limited to China. 

The role of other private stablecoins and their ability to compete with the extant U.S. payments system was also a critical theme of Brainard’s remarks. As she has in the past, Brainard promoted the value of public rather than private money, referring to the system of private bank money that preceded the development of the Federal Reserve. If private stablecoins come to dominate payments, Brainard said: “There’s a real risk that you could see fragmentation of the payments system and you could see financial protection and stability risk.”

Brainard noted that new initiatives at the Federal Reserves of Atlanta and Cleveland were aimed at researching the geographical and financially inclusive nature of a potential digital dollar.

“The Federal Reserve Bank of Atlanta is launching a public–private sector collaboration as a Special Committee on Payments Inclusion to ensure that cash-based and vulnerable populations can safely access and benefit from digital payments,” Brainard said. “This work is complemented by a new Federal Reserve Bank of Cleveland initiative to explore the prospects for CBDC to increase financial inclusion. The initiative will identify CBDC design features and delivery approaches focused on expanding access to individuals who do not currently use traditional financial services.”

Per her account, the Fed will also be putting out a white paper next quarter and seeking public comment on proposals for a coming CBDC.

© 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.

One River, the digital asset hedge fund backed by billionaire investor Alan Howard, has officially filed to create bitcoin exchange-traded fund that incorporates the purchase of carbon credits in an effort to make the product carbon-neutral. 

The firm’s plans for the One River Carbon Neutral Bitcoin Trust were made public in April when it partnered with carbon credit platform MOSS. Bloomberg reported on One River’s efforts earlier in April, with CEO Eric Peters telling the news outlet at the time that “There’s a lot of talk about the carbon footprint,” Peters said. “We decided it’s time to stop talking and start doing something about it.”

Per Monday’s SEC filing: 

“The One River Carbon Neutral Bitcoin Trust (the “Trust”) is an exchange-traded fund that issues common shares of beneficial interest (the “Shares”) that trade on the New York Stock Exchange (the “Exchange”). The Trust’s investment objective is to seek to track the performance of bitcoin, as measured by the performance of the MVIS One River Carbon Neutral Bitcoin Index (the “Index”), adjusted for the Trust’s expenses and other liabilities. The Index is constructed using bitcoin price feeds from eligible bitcoin spot markets and volume-weighted median price average (“VWMP”), calculated over 20 intervals in rolling three-minute increments with adjustments to reflect the current spot price of carbon credits necessary to offset the estimated carbon footprint attributable to each bitcoin. The Index is designed to reflect the performance of bitcoin in U.S. dollars on a carbon neutral basis. In seeking to achieve its investment objective, the Trust will hold bitcoin and will value its Shares daily based on the same methodology used to calculate the Index, as adjusted to reflect the expenses associated with the offsetting carbon credits. The Trust is sponsored by One River Digital Asset Management, LLC (the “Sponsor”), a wholly-owned subsidiary of One River Asset Management, LLC.”

The filing later explains:

“The Trust intends to offset the carbon footprint associated with bitcoin by purchasing and retiring carbon credits necessary to account for the estimated carbon emissions associated with the bitcoins held by the Trust. The Trust has entered into an agreement with LIRDES S.A. (doing business as Moss Earth) (“Moss”), a company located in Uruguay, to purchase MCO2 tokens representing certified reductions in greenhouse gas emissions. The MCO2 tokens issued by Moss are assets encrypted and tokenized utilizing blockchain technology and are stored on a registry managed by Verra, an organization that establishes and manages standards and programs in connection with carbon credits (“Verra”).”

“Each circulating MCO2 token is intended to represent a claim on a certified carbon credit held in an aggregated pool of carbon credits within the Moss account on the Verra Registry. Tokenized carbon credits are fungible and do not represent a claim on a specific underlying carbon credit issued to a specific carbon reduction project,” the filing continues. “The Trust will initially acquire MCO2 tokens from Moss from time to time at pre-negotiated prices in an amount sufficient to offset the estimated carbon footprint of the bitcoins held in the Trust’s portfolio, with a view towards tracking the performance of the Index. Upon expiration of its agreement with Moss in April 2031, the Trust will either enter into a replacement agreement, or alternatively acquire MCO2 tokens or similar carbon credits at then current spot prices for such instruments.”

The ETF’s filing comes amid a widening public debate about the carbon footprint of the Bitcoin network and its mining ecosystem in particular. Other firms in the space have taken financial approaches to blunt the carbon impact of their operations in recent days, as previously reported. Among those is Ninepoint, a bitcoin ETF issuer in Canada that has also moved to offset the carbon impact of its products. However, critics charge that the move to utilize carbon offsets in conjunction with financial products amounts to little more than greenwashing.

© 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.

Solidus Labs, a surveillance firm focused on monitoring market manipulation in crypto, has closed a $20 million Series A fundraise.

FTX, NYDIG, Evolution Partners, 645 Ventures and former Commodity Futures Trading Commission (CFTC) chairman Chris Giancarlo all invested in the round. FTX and NYDIG, leading institutional players in the crypto space, have secured significant funding rounds themselves in recent months.

Founded in late 2017, Solidus sells monitoring and compliance technology tailored to the digital assets market. Its aim is to help companies in the sector identify and report market manipulation by rogue traders.

“We don’t consume publicly available data, we take the internal financial data of an institution and surveil that to detect manipulation,” Asaf Meir, CEO of Solidus Labs, told The Block.

Part of the proceeds of the Series A round will go towards enhancing Solidus’s “cross-markets surveillance” tools, Meir added, with regulators demanding insights on whether bad actors are manipulating multiple trading venues at the same time.

“Regulators in this space have much more of an appetite to use machine learning and supervised algorithms to detect market abuse,” Meir said.

Solidus last raised money in February 2019, when it bagged $3 million a in seed round led by Hanaco Ventures. 

The firm’s initial clients were primarily crypto exchanges and OTC desks, but it is now seeing increased demand from decentralized finance (DeFi) operators, non-fungible token (NFT) firms and even central bank digital currency (CBDC) issuers.

Meir, a former Goldman Sachs engineer, said this had translated to a 400% increase in inbound demand in 2020.

© 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.

Crypto exchange Coinbase has hired former Goldman Sachs executive Faryar Shirzad as its chief policy officer, it announced Monday. He will begin the role at the end of June, a Coinbase spokesperson told The Block.

Shirzad spent the last 15 years at Goldman Sachs, leading the bank’s government affairs globally. At Coinbase, Shirzad will work with governments around the world on issues surrounding the cryptoeconomy.

Shirzad will “engage with lawmakers, regulators and other policy experts to realize crypto’s full potential to fuel a more equitable financial system along with job creation, GDP growth, and innovation,” said Coinbase.

Shirzad has held several government positions as well in the past, serving on the staff of the National Security Council at the White House as deputy national security advisor for international economic affairs and as the U.S. G-8 Sherpa. He also served as assistant secretary for import administration at the U.S. Department of Commerce and previously as international trade counsel to the U.S. Senate Committee on Finance. He is a lifetime member of the Council on Foreign Relations.

Coinbase’s new chief policy officer joins over two years after Mike Lempres, the company’s former chief policy officer and chief legal and risk officer, left in February 2019. Coinbase’s current chief legal officer is Paul Grewal and Shirzad will report to him, the Coinbase spokesperson told The Block.

© 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.

HSBC CEO Noel Quinn has said that the banking giant has no plans to launch a cryptocurrency trading desk or offer it as an investment vehicle to its clients. That is because crypto is too volatile and lacks transparency, he said.

“Given the volatility, we are not into Bitcoin as an asset class. If our clients want to be there then of course they are, but we are not promoting it as an asset class within our wealth management business,” Quinn told Reuters in an interview published Monday.

As for crypto’s transparency issues, Quinn said it is difficult to know who owns crypto, and there are also issues with crypto’s easy conversion into fiat money.

Quinn is also not optimistic about stablecoins because of their problems with reserves backing and accessibility. “Then you get to stablecoins, which do have some reserve backing behind them to address the stored value concerns, but it depends on who the sponsoring organisation is plus the structure and accessibility of the reserve,” he said.

Steering clear of volatility

Quinn’s comments come amid the crypto market’s latest rout. Bitcoin has lost almost 50% of its value in over a month, from about $65,000 in mid-April to about $36,500 at the time of writing. China’s comments to do with “cracking down on bitcoin mining and trading activities” on late Friday resulted in mayhem over the weekend.

As for HSBC, it is known for its pessimistic view of crypto. The bank’s online share-dealing service HSBC InvestDirect recently banned customers from buying MicroStrategy shares because “HSBC has no appetite for direct exposure to virtual currencies [VCs] and limited appetite to facilitate products or securities that derive their value from VCs.”

HSBC rivals such as Citi, Goldman Sachs, and UBS, on the other hand, have all warmed up to the crypto market recently. Goldman Sachs restarted its crypto trading desk earlier this year. Citi and UBS are also considering launching crypto services for their clients. Morgan Stanley, Bank of New York Mellon, and others have also moved to provide crypto services to their wealthy clients.

JPMorgan Private Bank recently told its clients in an educational deck that bitcoin can be a portfolio diversifier “if sized correctly.”

© 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.

Quick Take

• The growing amounts of capital locked in DeFi protocols underscores the need for regular and thorough audits of smart contract code
• Bug bounties can be an effective way to procure and incentivize assistance from hackers
• Many bounties recently have increased in value alongside overall DeFi growth

This research piece is available to
members of The Block Genesis.
You can continue reading
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A comment made in China’s State Council meeting about cracking down on bitcoin trading and mining activities has sent shockwaves to local bitcoin miners over the weekend.

While the regulatory hammer has yet to drop officially, the suspension is already driving some bitcoin miners into panic mode. While some have started selling their coins, others are turning to overseas mining facilities.

“In past 48 hours, Chinese miners already started to accelerate migrating process to other countries,” tweeted Mustafa Yilham, who leads the overseas business at Bixin, a long-time bitcoin mining firm in China. “There will also be large quantities of Bitcoin mining machines available for sales.” 

“There will be some enforcement actions in [the] coming weeks. No one knows the level of enforcement action that will be taken at the moment. Uncertainly is creating bearish sentiment among Chinese miners,” Yilham added.

Dovey Wan, founding partner of Primitive Ventures, said on Twitter that she has already received messages from local bitcoin miners who intend to sell their machines or ship them overseas. She gave an example of a set of 20,000 mining rigs, mostly AntMiner 319s and WhatsMiner M20s, that are for sale. 

So far, China-based mining pool BTC.top — which has about 1.5% of bitcoin’s total hash rate — has said its subsidiary mining equipment brokerage business B.top will discontinue serving mainland China-based customers. Crypto exchange Huobi, which also owns a bitcoin mining pool, told The Block in a statement that it will also stop providing the miner brokerage service for new users in mainland China. But its mining pool business remains operational.

On Friday night local time, China’s State Council published the notes of a recent meeting hosted by its Financial Stability Development Committee, which mentioned that cracking down on bitcoin mining and trading is part of its upcoming priorities for preventing financial risks. But it remains unclear what exactly the enforcement actions will follow.

Tokens backed by bitcoin’s hash rate

The concerns around the potential reduction of bitcoin mining in China, which could lower bitcoin’s hash rate, have impacted hash rate-backed tokens too. These tokens are issued by miners and backed by a certain amount of hashing power. Token holders receive mining rewards correlating to the amount of hashing power their tokens represent. They offer a way to get indirect exposure to the bitcoin mining process.

The fluctuation of pBTC35A, the bitcoin hash rate-backed token launched by mining pool Poolin, could be indicative of the bearish sentiment that has spread among the local mining and trading community over the weekend as some large pBTC35A holders have been spooked by the State Council meeting’s comment. 

The price of pBTC35A was still trading at $102 before the news drop, still higher than Poolin’s initial sale price of $100. But since then, it has dropped by over 30% to as low as $69 before bouncing back to $80 as of press time. Over the weekend, the two largest sell orders of pBTC35A on decentralized exchange Uniswap added up to over 6,100 units of the hash rate token, which accounted for more than 2% of its circulating supply.

The holders of pETH18C, Poolin’s Ethereum hash rate-backed token, has also experienced a similar sell-off. It’s changing hands on Uniswap at $17, down 43% from the initial sale price of $30.

That said, the on-chain staking of pBTC35A for yielding wrapped bitcoin (wBTC) through Poolin’s Mars protocol hasn’t been affected. In fact, bitcoin’s overall hash rate has remained steady at around 143 exahashes per second over the weekend. As The Block reported last week, the three-day moving average of bitcoin’s hash rate had already declined since mid-May to around 145 EH/s as of Thursday.

As a result, the Bitcoin network’s average block production interval since the last mining difficulty adjustment on May 13 has been around 11.8 minutes, nearly 20% longer than the intended 10-minute-per-block. That means the mining difficulty adjustment is set to see a significant negative drop when it’s due in about 6 days.

In fact, Poolin said it is already focusing on working with overseas mining farms to distribute its business more globally. This has been part of its business plan at least since its mining conference in April. During that conference, various panelists said China’s long-time bitcoin hash rate dominance had already been fading amid the rise of institutional buyers from Europe and North America.

Further, the Xinjiang accident that happened in mid-April forced the majority of the mining farms in the area to shut down their operations for a week, arguably showcasing the instability of the local environment.

Apart from the mining community, the State Council’s meeting also had an immediate impact on the overall cryptocurrency market. This particularly affected exchange tokens, with those run by Huobi, OKEx and Binance plunging by more than 30% over the weekend.

The exchange rate between Tether’s USDT against the Renminbi on over-the-counter desks is still at a negative premium compared to the exchange rate of the US dollar against the yuan.

© 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.