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The crypto industry as a whole lost $3.9 billion in 2022,  according to a new report from bug bounty platform Immunefi.

Of those, only 5.2% were recovered, totaling around $204.2 million across 12 instances, the firm also said.

Most losses were due to hacks, while only 4.4% could be attributed to frauds, scams, and rug pulls. DeFi was the main target of those exploits while CeFi was a distant second, according to Immunefi.

Another Chainanalisys report had estimated total losses due to crypto hacks in 2022 at a more conservative $3 billion.

Among the largest crypto hacks carried out last year were the attack on Ronin Network, resulting in the loss of $625 million, and FTX, which lost between $370 million and $400 million.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin and ether traded steady on Friday, while altcoins dipped and memecoins surrendered gains. Losses for crypto-related stocks continued as Silvergate plunged 10%.  

Bitcoin was trading around $16,770 at 10 a.m. EST, down by about 0.3%, according to TradingView data. 

BTCUSD chart by TradingView

Ether traded about $1,250, dipping 0.1%, while altcoins like Ripple’s XRP and Polygon’s MATIC continued to trade lower, falling by 1.6% and 1.8%, respectively.

Dog-themed memecoins returned yesterday’s gains, with Dogecoin falling 2.4% and shiba inu declining 3.6%.

Crypto stocks and structured products

The S&P 500 traded higher, adding 0.8% by 10 a.m. EST. The Nasdaq 100 was up 0.7%.

Silvergate tanked again at the open, slipping 10.5% to trade around $11. The crypto-friendly bank announced job cuts and $8.1 billion in withdrawals in the fourth quarter yesterday. JPMorgan dealt the firm a fresh blow, downgrading the stock to neutral from overweight.

Moody’s also downgraded Silvergate’s long term deposit rating to Ba1. Sadia Nabi, VP for Financial Institutions at the ratings agency, said that significantly decreased deposits, losses from the sale of securities and the bank’s plan to lay off 40% of staff highlighted “significant operating challenges” that could affect profitability, funding and liquidity risk.

Coinbase was down 4.3% shortly after the open, continuing declines from yesterday. Cowen downgraded the stock on Thursday, with analysts citing dwindling trading volumes. Needham’s John Todaro argued that the volume declines have mostly been digested by the market by now.

Cathie Wood’s Ark Invest was unperturbed by the drop, with ARK Fintech Innovation ETF adding 144,463 shares of the exchange, while ARK Next Generation Internet ETF bought another 27,813 on Thursday on top of the over 158,000 shares it bought last week.

On the other hand, it let go of a total of 403,990 Silvergate shares.

Block added 1% to trade above $65. MicroStrategy fell below $150, dropping 4.5%.

Shares in Grayscale’s bitcoin trust (GBTC) were trading at a discount to the net asset value (NAV) of 45.06% on Thursday. 

The asset manager announced a rebalancing of several funds, including the Grayscale Digital Large Cap Fund, Grayscale DeFi Fund and Grayscale Smart Contract Platform (excluding Ethereum) Fund. The large-cap fund increased its bitcoin and ether holdings. The changes in other funds versus the last quarter were relatively negligible. 

Macro Matters 

The U.S. economy added 223,000 new jobs in December, above the Dow Jones estimate of  153,000. Economists had predicted 200,000 new jobs. Last year was the second strongest year on record for job growth in the U.S. as the economy added around 4.5 million new jobs. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A wallet associated with Tron founder Justin Sun moved $100 million of stablecoins to crypto exchange Huobi. Two transactions took place at 11:10 a.m. UTC, moving $50 million each of USDC and USDT, as noted by security analysts PeckShield.

The wallet is associated with Sun on Ethereum block explorer Etherscan, meaning that the company running the explorer has on-chain reasoning to presume that he owns it. It also contains $16.5 million of decentralized usd (USDD), a collateralized stablecoin that Sun is closely associated with. At one point in its history, it contained $2.5 billion of ether.

One observer noticed that most of the funds originated from Just Lend, a lending platform on Tron, and were sent through Binance to the wallet, before they went to Huobi.

This comes at a time when Huobi is under close scrutiny. Sun reportedly acquired the exchange through an intermediary company, which he denies, maintaining that he is merely an adviser. Regardless, since then there have been big changes in the company, including layoffs and a mandate that employees are paid in stablecoins instead of fiat currency.

These changes, plus rumors that internal communications may have been closed, led to a drop in the price of huobi token (HT). It fell to a low of $4.30 from $5.20 over the last 48 hours. The token has since rebounded, rising to $4.80.

Following the transactions to Huobi, some exchange users noticed a $1 million buy wall for the token had been created. This means that a trader was willing to buy a million dollars worth of huobi token at a specific price — something that would diminish chances of the token falling below that value.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Decentralized exchange Balancer warned its liquidity providers to withdraw funds from five pools where $6.3 million of funds are at risk.

This appears to be part of a larger potential exploit or bug, which Balancer is trying to mitigate. Balancer said that it has used emergency controls to set protocol fees to zero for some of its other pools. This was done in order to protect against an issue that it will disclose in the future. It wasn’t able to do so for these five pools, hence it is encouraging liquidity providers to withdraw their funds as quickly as possible.

The five pools are on Ethereum, Polygon, Optimism and Fantom. The largest pool is DOLA / bb-a-USD, which currently looks after $3.6 million of funds.

Balancer is a DeFi protocol that allows users to trade tokens in pairs called pools. Liquidity providers supply these tokens to the pools and receive fees for doing so.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A security researcher discovered a software vulnerability that could have been exploited to steal as much as $200 million from three Ethereum-compatible parachains on Polkadot — Moonbeam, Astar Network and Acala.

The researcher, known as pwning.eth, found and reported the critical vulnerability in June, when the program was submitted, in a software called Frontier that is used for “wrapping” native tokens on the three blockchain projects (or parachains) on the Polkadot network. The report was submitted on the crypto-focused bug-hunting platform Immunefi on June 27, but only recently disclosed.

“Pwning.eth found a bug that impacted the entire Polkadot ecosystem and would allow hackers to steal over $200 million across Moonbeam, Astar Network, and Acala,” a representative from Immunefi told The Block. “They were all vulnerable to a bug that could have allowed malicious users to mint wrapped native tokens.” 

In this case, wrapping is the process of converting the native crypto assets of blockchains into tokens that can be more readily supported by apps. It is done with the use of a smart contract, which holds the native tokens in escrow and issues the wrapped tokens to the user.

The vulnerability on the three chains could have been abused to mint unlimited wrapped tokens, including wrapped astar (WASTR) on Astar, wrapped moonbeam (WGLMR) on Moonbeam, and wrapped moonriver (WMOVR) on Moonriver, a sister network of Moonbeam.

The estimated value of assets exposed to the vulnerability was about $200 million across the three parachains, Immunefi said. After the vulnerability was reported, the three parachain teams worked to fix it and released an emergency patch before any malicious actors could exploit it. No funds were lost.  

Moonbeam and Astar, which have active bug-bounty programs with Immunefi, awarded $1 million to the ethical hacker through Immunefi. Parity, developer of the Frontier Library, decided to contribute $250,000 toward the $1 million reward, despite not having a bug bounty with Immunefi.

Pwning.eth is no stranger to finding critical bugs and being awarded large sums. In early 2022, the white-hat hacker was rewarded with a $6 million bounty after discovering a vulnerability in Aurora, an EVM compatible blockchain for NEAR Protocol, saving about 70,000 ETH worth $210 million at the time.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The timeline for Mt. Gox financial details registrations and repayments has been pushed back by two months.

The first tranche of repayments from Mt. Gox has been moved to Sept. 30 from July 31, according to a creditor announcement. The deadline for providing crypto exchange and banking information has also been changed to March 10 from Jan. 10.

All creditors are set to receive a base payment. They will also receive an early lump sum payment or choose to accept what could be a different amount later. Payments will be provided in either cryptocurrency, fiat currency or both. This will be sent to the recipient’s bank account or crypto exchange.

Kraken’s potential impact

Among Mt. Gox creditors, there has been speculation that the timeline shift could be related to the crypto exchange Kraken’s exit from the Japanese market. Creditors had to select from a few exchanges to receive their crypto payments, with Kraken being one of them. But the exchange said it intended to leave the Japanese market in January after global layoffs.

Some creditors said that they have been facing challenges getting their crypto exchange details verified in time for the previous deadline — potentially due to Kraken’s upcoming exit — and that the new deadline will help them do so.

One creditor in the Mt. Gox creditors Telegram channel said they lived in Japan and registered Kraken as their exchange. After hearing of Kraken’s plan to leave the country, they registered for two other exchanges so they could provide alternative payment details. “I’m still waiting for both exchanges to complete my KYC, I will most likely miss the Jan 10th deadline,” they said, adding: “For me the extension was needed, I do sympathize with everyone who isn’t in my predicament.”

Kraken’s exit from Japan may not affect most creditors or repayments, but it could cause problems for Japanese users that wish to swap their crypto to fiat currency and withdraw to their local bank account.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Experts say a judge’s recent ruling that assets in a yield-bearing account belong to Celsius, not investors, highlights how high the stakes are in bankruptcy proceedings for customers of crypto firms.

Celsius, a cryptocurrency lending company, filed for Chapter 11 bankruptcy protection in July, one of several casualties of this year’s slide in the markets.  

Judge Martin Glenn, chief judge for the U.S. Bankruptcy Court for the Southern District of New York, ruled on Wednesday that assets in Celsius Earn accounts belong to the company, not customers. Earn accounts allowed users to deposit assets into a Celsius account, which was then used by Celsius to generate yields across various on-chain and off-chain investment strategies.  

Glenn said Celsius’ terms of use formed a “valid, enforceable contract” and “that the Terms unambiguously transfer title and ownership of Earn Assets deposited into Earn Accounts from Accounts Holders to the Debtors.” He acknowledged the decision could make it harder for Celsius customers to recoup the full value of their accounts, as the company looks to sell off portions of itself to fulfill its debts. 

Glenn added: “The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform.” 

Not Your Bank, Not Your Insured Deposit

Jennifer Schulp, director of financial regulation studies at the libertarian think tank Cato Institute, said the ruling showed the importance of the terms of agreement and conditions between the investor and the company.  

“It’s vitally important for investors to have understood what it was they were agreeing to with the company,” Schulp said in an interview. Those investors will now be placed into a queue as unsecured creditors, meaning they’re unlikely to get 100% back, Schulp said.  

Schulp contrasted the difference between putting digital assets into a crypto investment firm versus putting money in a bank, noting that banks have federal deposit insurance in the event of a failure.  

“Investors really should be careful to understand that their relationship with the crypto investment firm is governed by the agreement with the crypto investment firm, not background banking regulation that applies to standard fiat banks,” Schulp said.  

Earn accounts held crypto assets with a market value of about $4.2 billion as of July 10, 2022.  Stablecoins made up $23 million as of September 2022, according to court documents. Chapter 11 proceedings allow a business to stay operational as it restructures to pay creditors. 

The preferential treatment effect

Whether or not assets belong to a bankrupt firm are key issues in proceedings, said Thomas Braziel, partner at 507 Capital, which provides capital to restructuring companies. Creditors with defined property at stake tend to come out ahead of so-called unsecured creditors — customers owed money but otherwise without property at stake. 

“If you have estate property then clearly, you can go for preferences,” Braziel said in an interview. “You can’t claw back something that was never yours.” 

Added Braziel: “This is going to shine a light on what the fine print says for any CeFi [centralized financial] institution.”

For example, crypto exchange Coinbase added a risk disclosure in its quarterly report in May that said if it were to file for bankruptcy, the court might treat customer assets, which the exchange is a custodian for, as Coinbase’s assets.  

Braziel also highlighted the lack of regulation over customer rights in crypto and emphasized the importance of terms of service.  

“A lot of times with banks or insurance companies, you have protections for account holders that are written into the regulation that protect people,” Braziel said. “So you can’t just write whatever you want in the contract.”  

The court also said on Wednesday that stablecoins belong to Celsius and that the company could sell those to provide liquidity. 

Former Celsius CEO Alex Mashinsky, who was referenced in Glenn’s ruling on the Earn accounts, was sued by New York Attorney General Letitia James on Thursday for defrauding investors. Part of James’ stated intent in filing the suit was to recover damages on behalf of customers.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

FTX co-founder Sam Bankman-Fried has filed a court action seeking to block debtors from taking control of his roughly $450 million stake in brokerage Robinhood.

Lawyers for the disgraced exchange boss argued the shares do not belong to any of the FTX-related entities now in bankruptcy proceedings, and that Bankman-Fried needs the money to fund his legal expenses, according to a court filing dated Thursday.

FTX, sister hedge fund Alameda Research and other related firms now in bankruptcy and under the control of court-appointed liquidators are seeking access to any assets they can find in order, including the Robinhood shares, to repay roughly 1 million creditors of FTX.

Failed crypto lender BlockFi, a lawsuit filed by an FTX creditor, and also the U.S. Department of Justice have all also sought control of the shares. 

Bankman-Fried and fellow FTX co-founder Gary Wang bought their 56.2 million share stake in Robinhood via special purpose vehicle Emergent Fidelity Technology. The two men borrowed money via promissory notes in order to purchase the shares from Alameda, the petition said.

‘Irreparable harm’

“The FTX Debtors seek to disregard the separate existence of a corporation that is not a party to this action and encumber hundreds of millions of dollars’ worth of assets to which they have no legal claim,” Bankman-Fried’s petition said.

Bankman-Fried is relying on his stake in Robinhood to fund his criminal defence, the petition said. “The withholding of costs necessary to an adequate criminal defense can constitute irreparable harm,” the petition added, citing a past court decision. ”Conversely, the FTX Debtors face only the possibility of economic loss.” 

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.

Yogita Khatri contributed to this story.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The U.S. Securities and Exchange Commission (SEC) wants to understand the due diligence process investors followed when it came to investing in collapsed crypto exchange FTX, according to a Reuters report.

The regulator is looking to understand the due diligence policies and procedures FTX investors had in place at the time and whether they followed them when they invested in the exchange, the report said, citing two sources familiar with the matter.

The SEC have already brought charges against three FTX executives for allegedly defrauding investors: Sam Bankman-Fried, the CEO and co-founder of FTX; Gary Wang, the CTO and co-founder of FTX and Caroline Ellison, the CEO of Alameda Research. Both Wang and Ellison have already pleaded guilty and are cooperating with the SEC’s investigation.

The Commodity Futures Trading Commission (CFTC) and the U.S. Attorney’s Office for the Southern District of New York have also brought charges against Bankman-Fried, who pleaded not guilty to fraud charges on Tuesday.

A spokesperson for the SEC declined Reuters’ request for comment on the probe into investors’ due diligence.

Investors could face scrutiny over whether they met their fiduciary duty to their own investors, one source said in the report.

The publication was unable to determine the number of firms that were receiving inquiries from the regulator. FTX raised over $1.8 billion from more than 90 investors over the course of five years.

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.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bank of France Governor François Villeroy de Galhau is looking to tighten the country’s grip on companies providing crypto services this year — ahead of EU-wide regulation expected to roll out in 2024. 

“The disruption seen in 2022 is nourishing one basic conviction: France should switch as soon as possible to the compulsory authorization of DASPs (digital asset service providers) rather than simply requiring their registration,” Villeroy said in a speech on Thursday.

The French financial regulator, Autorité des marchés financiers (AMF), currently offers registration to crypto companies looking to legally provide services, as well as optional licensing. The coming year may enforce mandatory licensing provisions for crypto asset service providers.

Crypto behemoth Binance is one of the companies which was granted the French license earlier this year, as well as Société Générale, one of France’s leading banks.

Over the past year, a series of collapses and market slides in the crypto industry has caught the attention of regulators worldwide. Following the most recent downfall of crypto exchange giant FTX, policymakers urged the need to speed up the implementation of the EU-wide Markets in Crypto-Assets (MiCA) regulation. Financial regulators responsible for drafting the implementation laws in the coming year responded that their time is already pressed.

The MiCA regulatory framework outlines comprehensive licensing rules for crypto firms. Many policy experts have said that MiCA could have mitigated the impact of the FTX collapse on Europeans, had it already been in place.

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.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.