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A federal judge approved a stipulation between Voyager Digital and FTX, which includes an agreement that Voyager will set aside $445 million after an FTX entity sued it for loan repayments. 

The deal between the bankrupt crypto firms could pave the way for FTX and Alameda Research to reclaim assets.

Alameda Research, FTX’s sibling company that also filed for bankruptcy protection, sued Voyager for $445 million in loan repayments in January. 

Judge John Dorsey approved the stipulation between FTX and Voyager on Wednesday after an FTX hearing in the U.S. Bankruptcy Court for the District of Delaware was canceled earlier in the day. Dorsey also approved Katherine Stadler, a shareholder at the law firm Godfrey & Kahn, as the fee examiner in the FTX case. 

The unsecured creditors committees in the Voyager and FTX bankruptcy cases are also part of the deal.

As part of the stipulation, the parties agreed to participate in non-binding mediation and establish a framework for the litigation of remaining disputes. The deal illustrates how intertwined some large digital asset firms are.

The Alameda lawsuit could have a significant impact on Voyager customers. Another federal judge presiding over the Voyager case approved a plan for Binance.US to buy Voyager assets this week.

Voyager customers could see a 73% recovery under the restructuring plan, but that percentage would drop to 48% if the FTX and Alameda claims are successful, lawyers say.

The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

© 2023 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.

Silvergate Capital Corporation said it will wind down operations and voluntarily liquidate the Silvergate Bank in accordance with applicable regulatory processes.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of bank operations and a voluntary liquidation of the bank is the best path forward,” the firm said in a release. “The bank’s wind down and liquidation plan includes full repayment of all deposits. The company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”

© 2023 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 head of the Commodity Futures Trading Commission views most stablecoins as commodities, barring new law that could change their classification.

“Not withstanding that, they are a commodity, and we have to police that market without a clear direction from Congress that they’re some other type of asset,” CFTC Chair Rostin Behnam told reporters Wednesday, following an appearance before the Senate Agriculture Committee. “Based on the cases that we’ve brought around stablecoins, I think that there’s a strong legal argument that USDC and other similar stablecoins would be commodities,” unless Congress tells regulators otherwise.

Behnam singled out a specific enforcement action that the CFTC took against stablecoin issuer Tether and its sibling exchange BitFinex in 2021. 

That interpretation appears to put the CFTC and Securities and Exchange Commission on different pages on another digital asset-related topic. Last month the SEC notified Paxos that its U.S.-pegged stablecoin with Binance, BUSD, was an unregistered security. Paxos announced that it had stopped minting BUSD tokens after receiving the SEC notice. 

“As far as I know, with fiat-backed stablecoins, there’s no expectation of profit and return to the stablecoin holder,” Behnam said. But he made it clear that he was not sure how algorithmic stablecoins could be characterized. 

Differing on ether

Behnam and SEC Chair Gary Gensler already seem to have different views of ether, the second-largest cryptocurrency by market capitalization. Gensler has hinted that he views ether as a security, along with nearly every non-bitcoin digital asset. 

“We have regulated ether derivatives,” Behnam told reporters. “It’s not a coincidence that those futures were listed on CFTC markets. We did the analysis, the listing exchange did the legal analysis, and the analysis led to the conclusion that ether is a commodity, and I’ve been pretty consistent with that in the past.” 

The SEC has not formally declared whether ether is a non-security asset, but in 2018 the then-SEC Director of Corporation Finance Bill Hinman said he viewed ether as the Ethereum network at that point as “decentralized” to the extent that, “current offers and sales of Ether are not securities transactions.” Hinman has since returned to private practice and Gensler took leadership of the agency in 2021. 

Asked whether SEC action around ether could lead to complications for the CFTC, Behnam responded, “We feel confident that our legal analysis is correct and ether futures have been listed, I think for several years now.” 

Calling on Congress

Behnam, when pressed on whether the current regulatory approach to digital assets in the U.S. is working, once again emphasized the need for comprehensive regulatory legislation from Congress. 

“There’s a gap in regulation and we need to comprehensively regulate it because enforcement alone is not going to solve the problem, the risks, the customer protection issues around crypto,” Behnam said. “And as our markets have proven, as our regulations have proven over many, many decades, comprehensive regulation can prevent fraud, can prevent manipulation, and can stabilize markets and ultimately protect customers.” 

The CFTC chair added that such legislation could aid regulators in cracking down on activity by offshore crypto firms that violate U.S. law, as FTX allegedly did.

Citing similar authority for the CFTC in international swap markets that interact with U.S. customers, Behnam told The Block, “my thought is legislation should probably consider a similar policy around what is the significant nexus to U.S. customers.” 

Work on Senate bill continues

Behnam’s call for comprehensive legislation seems to continue to resonate with senators. Michigan Sen. Debbie Stabenow, the Democratic chair of the Agriculture Committee, has pledged to continue working on the issue after a bill she and top committee Republican Sen. John Boozman of Arkansas co-authored with input from Behnam stalled last year.

The bill, known as the Digital Commodities Consumer Protection Act, divided industry advocates and was strongly supported by former FTX CEO Sam Bankman-Fried. The high-profile collapse of FTX led to further examination of that support. 

That bill would have granted the CFTC more direct power over crypto exchanges and spot markets, as the CFTC can only proactively regulate commodity derivatives and pursue fraud and market manipulation through enforcement. Comprehensive stablecoins legislation drafted by current House Financial Services Committee Chair Patrick McHenry, R-N.C., and now Ranking Member Maxine Waters, D-Calif., would have created a new framework around stablecoins, but talks around the bill stalled over objections from the Treasury Department. 

During Wednesday’s Senate Agriculture Committee hearing, Sen. Roger Marshall, R-Kan., a crypto skeptic, asked Behnam what his level of concern over digital assets is on a scale of 1-10. Behnam put his at “7.5.”

Senate Banking Committee Chair Sherrod Brown, D-Ohio, who also sits on the Agriculture Committee, quipped that his was “8.2,” while Marshall added that his was “12.” 

The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

© 2023 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.

Coinflex is rebranding to Open Exchange (OPNX), Kyle Davies and Su Zhu’s latest crypto venture.

New CEO Leslie Lamb shared the news on LinkedIn. The exchange, intended for trading claims and derivatives related to funds stuck on failed exchanges, is the brainchild of the founders of the now-defunct crypto hedge fund Three Arrows Capital. 

Courts in Seychelles approved the firm’s restructuring plans on Monday. CoinFLEX’s original restructuring proposal included no mention of OPNX or plans to rebrand.

“I’m honored to be the CEO of Open Exchange. Alongside my cofounders, we are committed to applying the lessons of the past year to create a more transparent, accessible, and fair financial world for all,” Lamb added. 

The former hedge fund founders launched OPNX to unlock trapped claims, and radical transparency, according to Su Zhu.

© 2023 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.

A new contender is challenging Uniswap for decentralized exchange supremacy. Or so Maverick CTO Bob Baxley believes. 

Maverick Protocol, along with Lido, Liquity and Galxe, today deployed a decentralized exchanging that uses smart-contract driven on-chain modular trading strategies designed to offer more capital efficiency and reduced gas fees for liquidity providers.

“In Maverick, we give the LPs a new degree of freedom, which is they pick not just a range, but a distribution,” Baxley told The Block, adding that LPs can deploy liquidity “in an automated way with price so that it stays in range more often and that increases the capital efficiency.”

Maverick will integrate with Lido and use the staking protocol’s wrapped liquid staking token, wstETH, as the predominant ETH-based quote asset, and LPs that choose to use wstETH instead of ETH receive extra APR, since wstETH accrues staking rewards, the company said.

An additional partnership with Galxe and Liquity, will see the Maverick platform host LPs from the both communities establish and support respective LUSD-wstETH and GAL-wstETH pools, according to Maverick.

Market action and capital allocation

In decentralized exchange networks, LPs facilitate trading with capital they allocate to various trading pairs of cryptocurrencies for which they collect fees.

“The challenge with that is when the price leaves the LPS range, their capital efficiency goes to zero,” Baxley said.

On existing automated market makers, liquidity providers depend on sideways market action to maximize capital efficiency, and manually tracking price changes to maintain the concentration of a liquidity pool introduces gas costs and a layer of complexity, according to Baxley.

However, markets don’t always go sideways. Maverick designed approaches that allow LPs to make a bet on price action as they collect fees with automated strategies that operate on-chain and are designed to ensure capital is deployed at the price where trading occurs, said Baxley.

One strategy works like a directional bet that Baxley called “mode right” and only moves liquidity allocations with increases in price. Any subsequent decreases in price don’t change liquidity allocations in this scenario. So if the price decreases or trades below the range for an extended time, another mode may need to be selected.

The same settings can be reversed if the market is contracting for a “mode left” directional bet.

A “mode both” strategy offers the highest possible capital efficiency by tracking price action in either direction and allocating capital accordingly but also comes with a higher risk of impermanent and permanent loss which can occur during extremely volatile conditions, said Baxley.

“If you really believe the price is going to go sideways and just sideways, mode both is your way to go,” said Baxley, noting that it “can be a good position for something like a very stable pair like USDC, USDT, or even an LSD pair where you expect the price to not have kind of drastic undulations left and right.”

Arbitrary capital distributions

Another Maverick strategy is similar to how liquidity functions in Uniswap V3, but differs in that it allows LPs to select arbitrary distributions within a certain range that does not move with price, said Baxley. 

These arbitrary distributions allow LPs to direct their support and set price walls or price floors, or distribute capital to markets in ways that Baxley said are designed to reward early adopters.

For protocols interested in maintaining the dollar parity of a native stablecoin, such as Liquity, liquidity may be deployed on either side of the dollar peg to encourage trading where support is needed, Baxley said. 

“So this is in contrast to something like a curve stable swap pool where the liquidity is always proportional to the price, and so if it’s off peg and you add more liquidity, you are just exacerbating the problem,” Baxley said, pointing out that the structure of curve stable swap pools can mean LP capital infusions attempting to right the situation can “create a bigger liquidity wall between peg and price.”

© 2023 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.

Grayscale’s premier fund traded higher as its discount narrowed following what some perceived as a successful day in court. Crypto prices slipped across the board, and crypto-related equities also dipped.

Shares in the Grayscale Bitcoin Trust rose 4% by 10:30 a.m. EST, according to TradingView data. GBTC’s discount to net asset value was 35.7%, following oral arguments in its trial against the SEC. The bitcoin fund has been trading at a discount since early 2021, meaning shares in the fund are cheaper than the underlying bitcoin. The discount has narrowed to its lowest level since October. 

GBTC chart by TradingView

The positive moves in GBTC come despite a downward trend in crypto markets. Bitcoin was trading at $22,100, down 0.4%. Ether slipped 0.26% to around $1,550.  

BTCUSD chart by TradingView

Yesterday’s hawkish testimony from U.S. Federal Reserve Chair Jerome Powell has resulted in interest rate traders re-evaluating bets for the next increase. There is now an almost 80% probability of a 50 basis point increase in the target range on March 22, according to the CME’s FedWatch tool. The tool analyzes changes to the rate as implied by 30-day Fed Funds futures pricing.

CME FedWatch tool

Powell told Congress that the latest economic data has been stronger than expected, which suggests the “ultimate level of interest rates is likely to be higher than previously anticipated.” The head of the central bank also noted there would likely be softening in labor market conditions to combat inflation. Sen. Elizabeth Warren questioned the Fed Chair’s approach to unemployment to lower inflation.

It was a mixed day for crypto-related stocks. Beleageured crypto-friendly bank Silvergate Capital shed about 5% by 10:35 a.m. EST according to NYSE data. 

Coinbase added 3.9%, while MicroStrategy gained about 1%, and Jack Dorsey’s Block traded flat.

© 2023 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.

Coinbase introduced a product called Wallet-as-a-Service (WaaS), which allows companies to create fully customizable web3 wallets within their own apps with user onboarding as simple as in web2 applications.

Coinbase argued that the complexity of wallets remains a major challenge due to mnemonic requirements (seed phrase backup recovery) and counterintuitive UIs, in a blog post released today that The Block received an early copy of. That’s despite the opportunities available for brands in web3 to create new revenue streams and strengthen user engagement, it said.

Why it matters

Using Coinbase WaaS, companies can build native wallets straight into their own applications to create a more seamless experience without redirecting users to any external app or spending significant time, resources and expertise developing their own solution.

Without having to set up and secure a complicated 24-word recovery phrase, WaaS provides users with access to web3 using Multi-Party Computation (MPC). MPC is a cryptographic technology that can improve existing multi-sig techniques, effectively allowing wallet keys to be “split” between the user and Coinbase. 

As a full private key never exists in a single location, theft of the key is extremely difficult, even if a device becomes compromised, said Patrick McGregor, head of product for web3 developer platforms at Coinbase.

The design of WaaS means if a user loses access to their device, the key to the web3 wallet remains safe and can be securely restored. Coinbase is able to lock a wallet if a user notifies it, preventing it from being used to sign transactions. The design of MPC wallets means they are also natively cross-chain, offer cheaper transaction fees, provide more user privacy, avoid smart contract risks and are interoperable with ecosystem standards, McGregor added.

While existing web3 wallets are “functional for sophisticated and experienced users,” incoherent user experiences due to a lack of robust wallet integrations with apps, portability across devices and the secure backup and recovery of wallets were cited by McGregor as the main challenges WaaS can overcome.

Companies like Floor, Moonray, Thirdweb and Tokenproof have begun using WaaS to onboard web3 users across gaming, token-gated events and digital marketplaces.

“Individuals will no longer have to come with knowledge of how the blockchain works in order to interact with the brands they love. This is a huge step towards making the space more approachable and accessible,” said Tokenproof CEO Alfonso Olvera.

How it works

WaaS is a set of scalable and secure APIs designed to abstract away the complexities of blockchain infrastructure, providing access to web3 wallets with the ease of use of web2, while Coinbase handles everything under the hood.

The newbie-friendly approach enables users to create, access and restore wallets with authentication as simple as a username and password. MPC technology helps keep user assets secure by splitting, encrypting and distributing keys among multiple parties. McGregor explained that the keys used for signing are encrypted, requiring hardware-secured biometrics to decrypt and multi-factor authentication, like Google Authenticator and YubiKey, verification before restoring wallets.

While both multi-sig solutions and MPC enable assets to be secured by multiple parties, instead of using multiple individual signatures validated by a multi-sig smart contract, MPC introduces a “multi-user quorum structure,” meaning “multiple people are required to produce a single signature,” McGregor added. 

Compared to most web3 wallets, this means that users don’t have to manage their keys alone. While that could be seen as a trade-off between convenience and full self-custody, users still retain control over their assets and can export their keys to another software platform at any time.

Coibase’s WaaS initiative, aimed at helping to scale the web3 ecosystem, comes two weeks after launching its own Ethereum Layer 2 network, dubbed Base, in February.

© 2023 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.

Immutable, a web3 gaming company, added three positions to its leadership team, all at the C-level.

The new additions are David Bicknell as chief financial officer and Devon Ferreira as chief marketing officer, Immutable said Wednesday. The Australia-based company also promoted its senior vice president Jason Suen to chief commercial officer. All three positions are firsts for Immutable and not replacements, Ferreira told The Block.

Ferreira joins Immutable from Ava Labs, the creator of the Avalanche blockchain, where he spearheaded Avalanche’s marketing and brand development efforts. Bicknell, on the other hand, joined Immutable last August, and Suen was promoted to CCO last month, but the company chose to announce all three additions at once, said Ferreira. Bicknell previously worked for Meta, Twitter and several other companies. Suen worked for Shopify and other firms before Immutable.

In their new roles, Ferreira, Bicknell and Suen all plan to strengthen Immutable’s ecosystem. “Our focus this year is to win web3 gaming and bring digital ownership to the world,” said Ferreira. “We’ll continue to augment our platform so that traditional developers can use it to build these products quickly and easily.”

Immutable was founded in 2018 and offers a gaming-focused Ethereum Layer 2 network called ImmutableX. Several web3 games are built on ImmutableX, including Gods Unchained, Guild of Guardians, Illuvium, Embersword and Planet Quest. Immutable said it onboarded more games to its platform in the third quarter of 2022 than in its lifetime combined, going from just five deployed at the start of that last year to over 100 today.

The C-level hiring announcement comes shortly after Immutable reportedly laid off 11% of its staff late last month in the second round of job cuts. The current headcount of the company stands at 263, said Ferreira.

Raising funds?

The Australian Financial Review reported Tuesday that Immutable has been tapping private investors to buy its ImmutableX (IMX) tokens. The report said that rather than selling tokens it holds, Immutable has been pitching on behalf of the Digital Worlds Foundation (DWF), a non-profit based in the Cayman Islands set up to distribute tokens for Immutable’s projects.

“Yes, there is an exciting raise in the works, although this process is not yet complete,” Ferreira said. “Immutable is supporting DWF’s token sale to support investments in the IMX ecosystem.”

“Importantly, the sale relates to tokens held by the Foundation, not Immutable, and all proceeds will go to the Foundation,” he added.

He clarified that DWF is not part of the Immutable group, saying that it is a non-profit foundation and that its subsidiaries are independent entities — “one of which is the issuer of the IMX token to Immutable” — he added.

While Ferreira did not disclose the terms of the token sale by DWF, he said, “it was oversubscribed by >2X in the first 72 hours and is being led by a top 3 web3 VC.”

As for Immutable, the company is in “great shape with more than four years of runway and $280 million+ of cash on its balance sheet,” said Ferreira.

Immutable was valued at $2.5 billion in March last year when it raised $200 million in Series C funding.

© 2023 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 Bitstamp U.S. is optimizing its account onboarding process through a partnership with Prove Identity.

The exchange will use Prove Identity’s pre-fill onboarding solution to streamline the account registration process. The pre-fill tool, which is powered by the Prove Identity Network, populates account applications with verified identity information that is tied to an individual’s phone number, which means the exchange can onboard customers in under a minute, the company said in a release.

Prove’s identity network

Prove creates anonymized identity tokens using telecoms and mobile network data combined with bank-grade compliant information such data from utility providers and banks, said Joon Pak, head of crypto at Prove in an interview with The Block.

“We have the largest collection of identity tokens in the market,” Pak said. “If you’ve ever logged into Bank of America, American Express, PayPal, etc., we have your identity token. And that’s what we call the Prove Identity Network, its what underpins all of the solutions that we provide here at Prove.”

Prove’s solutions are used by more than 1,000 businesses including PayPal, Coinbase and Mastercard. The company was founded in 2008 and was formerly known as Payfone.

Onboarding via mobile

The partnership with Bitstamp has been in the works for over a year, said Thomas Hook, chief compliance officer at Bitstamp U.S.

“Frankly, I’ve been thinking about kind of these types of onboarding changes since I joined in May of 2021,” Hook said. “From my perspective, people don’t often think of compliance as a business differentiator and it really can be, especially as in these areas like onboarding.”

The pre-fill tool enables Bitstamp to remove the burdensome process of verifying an identity using documentation such as  uploading photo ID. Prove Identity has confidence in the information its authenticating through its “pro methodology,” which verifies the user is actually in possession of the phone, that the phone number is reputable and that the individual is the operator of the phone.

“We like to think of it as like three legs to a barstool, you need to have all three legs in order for the barstool to say upright,” Pak said. “And by having this pro methodology, this is how we can ensure that Thomas is actually presenting Thomas’s information when he’s creating a Bitstamp account.”

While document verification will still have a place in some onboarding processes, Pak highlights that fraudsters are becoming increasingly sophisticated at thwarting that verification process.

“Our stance is that yes, while [document] ID scanning is super important, that pro methodology, again the possession, reputation and ownership of a consumers phone, is really a powerful way to ensure that you’re having the most compliant, most secure and safe onboarding experience,” Pak said. “You’re letting the good guys through the front door and you’re stopping bad actors when they try to get in.”

Building in a bear market

The new onboarding service is only currently available on the Bitstamp U.S. exchange, but Hook hopes to expand this to different markets globally depending on jurisdictional requirements and being able to meet those needs through existing technology.

“The U.S. has a great wealth of information about individuals that can be used in these processes, which are called non-documentary verification processes,” Hook said. “Given the amount of information that exists its a good jurisdiction to move in and I think it makes us more competitive and maybe even stronger than some of the other offerings out there in terms of onboarding.”

The exchange is trying to also make itself more competitive by doubling down on building at a time when other players are pulling back.

“When things start to go in the right direction, this is going to be very important, right?” Hook said. “People are gonna flood the market and they need to have a quick way to get on board and be able to take advantage of that.”

© 2023 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.