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Ethereum co-founder Vitalik Buterin closed a seven-month short position on the non-pegged purported stablecoin RAI, netting a cool $92,000, according to on-chain records.

Buterin took the trade out in May and June, borrowing 400,000 RAI and selling it for $1.2 million of DAI, a stablecoin pegged to the US dollar. This created an effective short position on RAI against the US dollar.

Buterin closed the position on Jan. 22, selling $1.13 million of DAI and ether for RAI. He was left with a gain of $92,000, according to those on-chain records from Buterin’s Ethereum wallet (as noted by on-chain researcher kyoronut on Twitter).

Built by Reflexer Labs, RAI is an experimental “stablecoin” that isn’t pegged to any specific token or fiat currency but is backed by ether. Those who want to mint RAI have to lock up their ether as collateral and pay a 2% fee. 

RAI uses an algorithmic approach to stay stable. This design has an impact on the supply and demand for the token, helping to reduce its volatility — without keeping it pegged to any specific asset.

Due to its design, RAI does not stay pegged to the US dollar and does fluctuate over time. Over the last year, its price has decreased to $2.79 from $3.07. However it has remained much less volatile than most free-floating cryptocurrencies, including ether, which is used as its collateral.

A mistake in RAI’s design

Reflexer Labs co-founder Ameen Soleimani, who is currently the co-founder and CEO of SpankChain, used Buterin’s trade to support his argument that RAI’s current design was flawed. 

“ETH-only RAI was a mistake,” he said on Twitter.

Soleimani argued that because RAI holders don’t benefit from staking yields on the ether used as collateral, there’s an opportunity cost for minting it. As a result, he claimed the RAI redemption rate — what keeps RAI stable — should always be negative. This means the algorithm that is supposed to keep RAI flat would instead give it a slight downward trajectory. This is less than ideal since the whole point of the token was to try to keep it as stable as possible.

The way to solve this, he said, would be to use stETH as collateral. This is a liquid staking token that receives the ether staking yield. If this was used, then the collateral underpinning RAI would increase in line with the staking yield, benefitting RAI holders and removing the opportunity cost of minting it.

Only there’s a catch. When RAI was built, the founding team essentially threw away the keys. Unlike many Ethereum projects that have admin keys, giving them the ability to upgrade their protocols, RAI elected not to do so. Soleimani took the blame for this, acknowledging that it was mostly him in the founding team who was focused on what he described as “ungovernance.”

He added that the only way to fix this and introduce stETH as collateral would be to fully restart the protocol and try again with the changes. “Ungovern at your own risk,” he mused.

© 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 Algorand Foundation hired former WhatsApp and Nike exec Jessica Tsai Chin to steer its marketing efforts. 

Previously head of brand for global privacy at the Meta-owned messaging app, Chin said in a written interview with The Block that she was drawn to a role in crypto due to an interest in privacy and digital identity. 

“Many web2 companies are having a difficult time embracing the concept of decentralization and data ownership, but there’s a huge opportunity to move in this direction,” she said “I believe data privacy needs to be built-in by design and on by default.” 

Her first role in a web3 company, Chin is joining the industry in a period of upheaval. Crypto has been rocked by the collapse of key players, notably crypto exchange FTX and hedge fund Three Arrows Capital. Last week, crypto lender Genesis filed for Chapter 11 bankruptcy. 

Crypto companies have also previously been criticized by advertising watchdogs and regulators alike for their marketing — as misleading claims of future returns attempted to lure in customers. 

She sees this time of crisis as an opportunity to reshape how web3 companies market themselves even at a time when the wider non-crypto native public view digital assets in a negative light. 

“Web3 marketing needs to truly lead the charge,” she said. “We need to move away from pure hype marketing and move towards a much more authentic, community and human-centered place, boldly leveling the playing field of who gets access to what.” 

Time to change

As part of this change, she sees opportunities in featuring underrepresented voices to drive conversations around inclusion and representation, which she believes has not been widely covered yet in the web3 space. 

“Both at Meta and Nike, I had the opportunity to feature underrepresented voices and partner with meaningful organizations to drive visibility,” she said. “Everything we did drove brand and business impact but also on-the-ground impact for the communities that we serve. The web3 space is ripe for this type of conversation and real-world application.” 

Previously, Algorand has raised its profile with sports deals — for instance, FIFA released its digital collectibles project on the blockchain for November’s World Cup. Sales volume for the collection currently stands at more than $400,000 total according to data from CryptoSlam, but has petered out in recent weeks following the event. 

Chin said that while sports will remain a key part of Algorand’s marketing master plan, she will also focus on highlighting DeFi and social impact projects built on Algorand.  

As part of her role, Chin has already hired a head of performance and is looking to bring on a head of communications and a creative director. 

© 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.

QuickNode, a web3 infrastructure firm that provides blockchain development tools, reached an $800 million valuation in a $60 million Series B round.

Dan Tapiero’s 10T Holdings led the round, with Alexis Ohanian’s Seven Seven Six, Tiger Global, Protocol Labs, QED Investors and others participating, QuickNode announced Tuesday. As part of the deal, Tapiero is joining QuickNode’s board of directors, Alex Nabutovsky, CEO and co-founder of QuickNode, told The Block in an interview.

QuickNode managed to raise funds during the FTX fallout. The company began raising for the Series B round in September and closed it in December, Nabutovsky said. This was possible because of QuickNode’s growing business and demand for its services, Nabutovsky added.

“QuickNode had two record quarters — both Q3 and Q4 of 2022,” he said. “We had an incredible amount of demand and growth. Our revenue grew more than 300% over the past year.”

Founded in 2017, QuickNode provides multi-chain development tools across 16 blockchains. The company has some high-profile clients across web2 and web3, including BNY Mellon, Samsung, LG, Coinbase, Chainalysis and 1inch Network.

QuickNode’s 3x revenue growth also led to a jump in valuation from its last funding round. The company was valued at $250 million when it raised $35 million in Series A funding in October 2021, according to Nabutovsky. For context, QuickNode’s closet competitor Alchemy was valued at $10.2 billion in February 2022.

With fresh capital in hand, QuickNode looks to expand its current team of around 120 to about 180 in the near future, said Nabutovsky, adding that the company will mainly hire developers. Miami-based QuickNode also plans to increase its international presence in Asia and Australia, said Nabutovsky.

QuickNode also aims to decentralize its operations in the future. To that end, it could launch a native “governance token,” Nabutovsky said. That said, the company also has plans for a public listing in the future. “We are very much geared towards an IPO,” Nabutovsky said. “The tokenization part will be a non-security token if that ever comes up.”

Before it goes for an IPO, QuickNode could also raise a Series C round, according to Nabutovsky.

© 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 giant Kraken has hired C.J. Rinaldi as its chief compliance officer. 

Rinaldi joins Kraken after working at the crypto services firm Blockchain.com as its chief compliance officer from October 2021 until December 2022. Rinaldi helped mitigate Blockchain.com’s risk and expand its global compliance framework. Before Blockchain.com, Rinaldi worked at Deutsche Bank as chief compliance officer, and prior to that as senior counsel in the Enforcement Division of the U.S. Securities and Exchange Commission.

Jesse Powell, Kraken’s CEO of over 11 years, stepped down on Sept. 21, 2022, and the firm’s COO David Ripley assumed the CEO role. Kraken laid off 30% of its workforce on Nov. 30, 2022 to help “weather the crypto storm,” joining Bitso, Gemini, Immutable and a myriad of other crypto firms to downsize their workforce amid depressed market conditions last year, The Block previously reported. 

Kraken saw $13.8 billion in monthly crypto exchange volume in December, comprising 2.95% of all crypto exchange volume for the month, according to The Block’s Data Dashboard.

© 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.

New York Department of Financial Services (NYDFS) Superintendent Adrienne Harris reminded licensed crypto custodians in the state of their fiduciary duty to ensure customer funds are not commingled with their own assets.

Harris, a proponent of the state’s BitLicense regime, issued the reminder in a regulatory guidance statement published on Monday. The guidance covered consumer protection concerns in the event of insolvency for licensed crypto custodians in the state. Monday’s regulatory note reiterated the NYDFS stance against the commingling of funds by crypto custody firms.

Commingling is when a fiduciary does not segregate its own assets from the funds that it holds on behalf of its customers. Commingling is a breach of trust in the financial markets and has been linked with the FTX collapse. FTX CEO John Ray previously testified before the U.S. Congress that FTX and its sister trading firm Alameda Research ran commingled accounts.

Crypto custodians must adhere to the same accounting best practices as their traditional finance counterparts, the guidance stated. As such, they must ensure the segregation of their assets from customer deposits. Crypto custody firms must also limit themselves to the safekeeping of client funds. They must not create a debtor-creditor relationship with their customers, the guidance reiterated.

Monday’s guidance also included rules for sub-custody arrangements and general disclosures. Sub-custody is when a licensed custodian decides to store customer funds with a third party. The NYDFS says such a practice is allowed as long as the third party is approved by the regulator.

© 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.

Banks holding crypto will need to follow strict laws to ensure capital requirements, lawmakers decided in a European Parliament committee vote on Tuesday.

An amendment slipped in before the vote proposed that banks should apply a risk-weighting of 1,250% to crypto-assets exposures, Reuters reported on Monday, to a bill covering financial capital requirements for traditional institutions. This means that, when the rules would come into effect, banks will need to be able to cover a complete with capital reserves and not be able to gain leverage. The proposed percentage is the highest level of securitization proposed by Basel III reforms set by the Basel Committee on Banking Supervision, which sets international banking standards.

The bill further outlines that the European Commission should “review whether a dedicated prudential treatment for crypto assets would be needed and to adopt, if appropriate, a legislative proposal to this end,” according to the draft report. 

The Switzerland-based group released a report in December proposing new guidance on how banks should manage exposure to digital assets.

EU policymakers will continue referring to the work of the Basel Committee.

© 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.

After weeks of French officials calling for stricter crypto regulation in France, a new regulatory regime on crypto firms will go to a vote in the country’s National Assembly on Tuesday evening.

French legislators are debating whether to impose mandatory licensing for digital asset service providers before European Union-wide regulations come into effect towards the end of 2024. 

Social-liberal Senator Hervé Maurey originally proposed that digital asset companies should obtain a mandatory license by October this year. This received a chilly reception from the crypto industry, as not a single company has obtained the hard-to-get accreditation, which is currently optional. 

“The recent bankruptcy of FTX has highlighted the risks inherent in any investment in crypto assets, especially when the company operates outside of any regulation,” Maurey wrote in the text accompanying an amendment he introduced to a broader bill transposing EU law. In addition to Maurey’s amendment, the National Assembly will weigh two others: one that would push the licensing deadline back, giving companies more time, another that would replace the mandatory license with a simpler registration. 

AMF registration

At present, companies offering crypto services in France opt to register with the financial regulator, the Financial Markets Authority (AMF), instead of obtaining a license. 60 companies are currently on the list, meaning the French government sees them as professionally competent and compliant with anti-money laundering laws. The list includes Binance France, the global crypto behemoth’s local subsidiary, and Société Générale, one of the country’s leading banking groups. 

To get a full license from the AMF, however, firms need to secure liability insurance or minimum equity, nail down internal controls and follow cybersecurity protocols along with other organizational requirements. No firms have yet achieved this.

With an industry push, liberal-centrist Senator Daniel Labaronne proposed an alternative amendment last Friday, suggesting that the more common registration process could beef up with more measures on consumer protection and corporate controls for crypto firms to abide by under supervision of the AMF. These measures would be more achievable compared to the high-tier license. 

Earlier last week, Labaronne also proposed to move the licensing deadline to January 2024 instead of October 2023, to buy the industry more time. This leaves three possibilities for new national laws on crypto firms that policymakers will determine during Tuesday’s vote.

A bridge to MiCA

The last amendment by Labaronne is the mildest option for the French crypto sector. It also builds the competence of firms towards provisions suggested under the EU’s Markets in Crypto-Assets regulation, which will become a requirement in the coming years, Faustine Fleuret, head of French crypto advocacy group ADAN, told The Block.

The upgraded registration option covers requirements on governance, reporting to regulators and segregation of funds — all of which are already covered by MiCA, which is expected to pass a final vote in April. 

“These proposals are a step in the right direction, both to effectively protect the investor and to preserve the dynamics of innovation and business creation in France,” Fleuret said. 

Fleuret is also worried that the AMF lacks sufficient resources to take on the influx of crypto supervision, especially if the more stringent amendments accelerating mandatory licensing pass in the National Assembly. The French regulator is still building up capacity to supervise the crypto sector.

“The resources allocated by the AMF to the process of these files are constantly increasing and the AMF will continue to mobilize the resources necessary to carry out this mission,” an AMF spokesperson said, referring to the possibility of accelerated licensing.

Whichever amendment passes, companies which are already registered will be able to continue to operate until the end of the transition period which MiCA offers, likely in early 2026.

Stricter regulation

The push for stricter regulation on for crypto firms is a common call-to-action from policymakers post-FTX debacle. In the European Parliament, MEPs urged regulators to speed up the implementation of MiCA. Regulators quickly dispelled this would be a feasible possibility. 

The AMF joined the chorus of French policymakers and central bankers supporting the acceleration of crypto licensing in response to November’s meltdown of the crypto exchange giant.

“The crypto universe must now make a clear choice to embrace regulation and investor protection. This is in its own interest because one black sheep can easily bring an entire industry into disrepute,” said AMF Chair Marie-Anne Barbat-Layani earlier this month. “The AMF, like the French Parliament, is calling for an acceleration of the transition to mandatory registration for service providers that are currently not registered.”

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.

© 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 Internal Revenue Service, the Securities and Exchange Commission and the U.S. Attorney’s office for the Southern District of New York were among some of the creditors listed in a court document filed Monday.  

Genesis Global Holdco filed for bankruptcy protection last week in the U.S. Bankruptcy Court for the Southern District of New York. When it filed for bankruptcy, the firm said it had more than $150 million in cash on hand to provide “ample liquidity” to support its business operations and facilitate the restructuring process.  

Many of the creditors’ names were redacted. Others include law firm Norton Rose Fulbright US LLP and the Stellar Development Foundation, a nonprofit.  

The firm took a financial hit following the collapses of the crypto hedge fund Three Arrows Capital and the FTX exchange last year. The firm halted withdrawals and new loan originations from its lending affiliate on Nov. 16. Before that, Genesis Global Trading said its derivatives business had $175 million stuck in FTX following the failure of the crypto exchange. 

On Jan. 12, the SEC charged both Genesis Global Capital LLC and Gemini Trust Company LLC with the unregistered offering and sale of securities through the Gemini Earn lending program. The agency said that program was offered to retail investors, some of whom were in the U.S. 

The U.S. regulator said Genesis, which is part of Digital Currency Group, entered into an agreement in December 2020 with Cameron Winklevoss-led Gemini to offer Gemini customers an opportunity to lend their crypto to Genesis in exchange for Genesis’ promise to pay interest. The program has been the subject of a public fight between the two erstwhile corporate partners. 

© 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 lender BlockFi is looking to sell $160 million in bitcoin mining machine-backed loans amid its bankruptcy process.

The bidding started last year and some of the loans may be under-collateralized due to the decline in machine prices, unnamed sources told Bloomberg.

The price of mining rigs fell more than 80% over the course of last year as the decline in bitcoin prices and the spike in power costs squeezed mining margins.

BlockFi was a major lender in the mining sector, although mining only accounts for a minority of the firm’s business, as its Chief Risk Officer Yuri Mushkin told The Block in October. It has not underwritten any new loans to miners since the spring of 2022, Mushkin said.

Miners have been struggling with the biggest player, Core Scientific, filing for Chapter 11 bankruptcy in December. Meanwhile, Argo Blockchain sold its flagship facility in Texas to Galaxy Digital for $65 million.

© 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 FBI confirmed Monday that Lazarus Group and APT 38 were behind a $100 million heist on proof-of-stake blockchain platform Harmony last June, and they attempted to launder the money through the RAILGUN privacy protocol.

The FBI said Lazarus Group and APT38, cyber actors associated with the North Korea, committed the theft of $100 million of virtual currency from Harmony’s Horizon bridge reported on June 24. The hack was associated with a malware campaign called “TraderTraitor” that was led by the Democratic People’s Republic of Korea, according to the FBI and Cybersecurity and Infrastrastructure Security Agency (CISA).

Portions of some $60 million worth of ETH the hackers routed via RAILGUN, a privacy exchange, “were frozen, in coordination with some of the virtual asset service providers,” according to the agency.

The DPRK uses funds it acquires from hacks like this to fund its ballistic missile and weapons of mass destruction programs, the FBI said. Lazarus Group was connected to the $600 million Ronin exploit last year in April. The U.S. government warned that both groups were associated with targeting crypto firms to steal assets around the same time the Ronin exploit occurred.

© 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.