FreeCryptoCurrency.Me

Former FTX CEO Sam Bankman-Fried on Monday decided to agree to be extradited to the U.S. to face fraud charges, Reuters reported, citing his lawyers.

The report came several hours after one of Bankman-Fried’s lawyers told a judge at a hearing in the Bahamas that he wanted to see the indictment from the U.S. before consenting to be brought to the country. The New York Times subsequently reported that local defense lawyer Jerone Roberts said Bankman-Fried had agreed to the extradition voluntarily against “the strongest possible legal advice.” 

“We as counsel will prepare the necessary documents to trigger the court,” the Times cited Roberts as saying; the paper cited sources as saying that Bankman-Fried had been planning on contesting the extradition but changed his mind over the weekend. 

Reuters reported that Bankman-Fried departed the Monday hearing in Nassau in a black van marked “Corrections” and said he could be back in court later this week. 

U.S. authorities last week charged Bankman-Fried a month after the crypto exchange he founded filed for bankruptcy protection, with an eight-count indictment from the U.S. Attorney’s Office for the Southern District of New York court accusing him of committing or conspiring to commit fraud on FTX’s customers and lenders, money laundering and conspiracy to defraud the U.S. and violate campaign finance disclosure laws. 

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.

The incoming chair of the House Financial Services Committee wants regulators to “to modernize and streamline how innovators interact with regulators,” and grant offices of innovation the power to create “regulatory sandboxes.” 

Patrick McHenry of North Carolina, the lead Republican and soon-to-be chair of the House Financial Services Committee, has re-introduced his Financial Services Innovation Act for the third time. The re-introduction signals that he plans to advance the bill further when he becomes committee chairman in the next Congress. 

The bill mandates that the federal financial regulators create “Financial Services Innovation Offices” that would “establish procedures to reduce the time and cost of offering a financial innovation to the public and enable greater access to financial innovations.”

That includes allowing companies to apply for alternative compliance plans, and to waive or modify regulations in order to enable the company to provide services that might otherwise run afoul of those rules. The Consumer Financial Protection Bureau provided two no-action letters to fintech lender Upstart in order to experiment with its algorithmic underwriting model, before the company terminated the agreement earlier this year. 

Some regulators already have specialized innovation offices, like the Securities and Exchange Commission’s FinHub, LabCFTC at the Commodity Futures Trading Commission and the Office of Competition and Innovation at the Consumer Financial Protection Bureau. 

The federal financial regulators would also have to publish lists of existing regulations that they would consider waiving for financial services firms using new tech. 

© 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.

This report takes stock of the market structure and landscape of digital asset lending. It also gives insights into the state and outlook for its regulation.

Section 1 provides an overview on the current market situation. Several major crypto (lending) companies defaulted in 2022, and contagion is still spreading. While this has negatively affected digital asset lending in the short-term, the space has not lost its attractiveness.

Both, CeFi and DeFi lending entities provide the rails for capital allocation in the digital asset lending space, with the former still playing a more important role for institutional participants. However, the crypto ecosystem is capital inefficient. This opens several possible arbitrage opportunities that are reviewed in the following section.

Section two focuses on the digital asset lending market structure. After discussing the uncertain future of Genesis, a major provider of prime brokerage services in the digital asset space, the drivers for demand and supply of crypto lending are reviewed. Lending entities mainly allocate funds to four types of borrowers/venues: i) crypto companies, ii) retail clients, iii) blockchains with proof-of-stake as consensus mechanism that offer staking rewards, and iv) financial institutions and professional traders.

Finally, differences between CeFi entities and DeFi protocols are compared across the eight dimensions

• interest rate and maturity,
• custody,
• transparency,
• user experience,
• regulation,
• customer base,
• collateralization, and
• privacy

Section three sheds light on the current landscape of digital asset lenders, distinguishing between centralized and decentralized entities. The outlook for many CeFi lenders remains highly uncertain. By contrast, most DeFi lending protocols, some of which started to provide services for institutional clients, have fared relatively well during the 2022 turmoil.

A trend towards on-chain lending, which may be supported by three developments, seems to emerge. First, with the recent implosion of some CeFi lenders, transparency, which comes naturally with on-chain protocols, is top of mind for investors. Second, regulators are working on providing regulatory frameworks for the crypto space, including DeFi. This may further unlock the space for professional investors, in particular for on-chain protocols. Third, while not yet comparable to the CeFi experience, the DeFi user-experience is slowly maturing. This is necessary if an increasing amount of lending shall be carried out on-chain by investors, who may not always be familiar with the technological intricacies of blockchains.

Regulated lending entities whose business is carried out transparently on-chain may prove to be an area of strong growth going forward. Whether this happens through centralized players harnessing on-chain transparency for their purposes, or through decentralized protocols maturing and operating within a regulatory framework remains to be seen.

Section four outlines regulatory trends in the U.S. and provides an outlook on potential levers for an emerging regulatory framework for digital asset lending. Regulatory scrutiny is likely focused on the three dimensions i) digital asset lending (involving retail), ii) stablecoins, and iii) DeFi. Regulators will place high priority on companies that have allegedly caused significant financial losses for retail participants while operating outside the regulatory perimeter.

Focusing on the U.S., a consistent regulatory framework for crypto is still largely absent. This has led to a practice of ‘regulation by enforcement’. To determine whether a digital asset is a security, the SEC applies the Howey and Reve’s tests. Regulatory scrutiny led to three key state/federal enforcement actions in digital asset lending, affecting BlockFi, Celsius and Nexo. All three companies were handed cease and desist orders for part of their product offering.

To create momentum for an encompassing crypto regulatory framework, President Biden signed an executive order for “Responsible Development of Digital Assets” on 9 March 2022. Regarding crypto lending, regulation emerging from the executive order will likely touch on consumer protection. The section closes by outlining existing regulation for financial institutions in the traditional financial system (Basel III) to gauge regulatory approaches, which may be applied to bring similar activities in the crypto space into the fold.

Section five concludes.

© 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.

Silvergate shares slumped 9% following the announcement of a lawsuit against the bank for its alleged “integral” role in Sam Bankman-Fried’s FTX exchange. 

The stock is trading near an all-time low. Peer crypto stocks were also lower, with Robinhood down 5.9% and Coinbase lower by 3.7% at 2:12 p.m. ET.

The lawsuit, which is seeking class action status, argues that the crypto bank is liable in the alleged fraud at the collapsed FTX exchange because it maintained accounts for the collapsed exchange and sister trading firm Alameda Research, aiding and abetting breach of fiduciary duty.

Filed in the U.S. District Court for the Southern District of California, the lawsuit claims Silvergate had “plain sight” of crimes being committed because of the numerous accounts it held for FTX Ltd., FTX US and Alameda.

FTX founder and former CEO Sam Bankman-Fried was arrested on Dec. 12 in the Bahamas on charges that include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering.

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.

Polygon has partnered with the neo-banking app Hi to introduce a platform that allows users to mint NFTs for a web3-focused debit card. 

Called the NFT Debit Mastercard, card holders can spend either crypto or fiat currencies at 90 million global merchants. Users can also mint any personal NFT, whether a holiday photo or profile picture, for the cover of their debit card without paying gas fees. 

The move marks the latest strategic partnership for Polygon, which is trying to become the face of gasless fees for NFTs. Polygon undergirds the Starbucks NFT loyalty rewards beta as well as new blockchain gaming features from Solana’s biggest NFT marketplace, Magic Eden. 

Though Ethereum still dominates NFT trade volume by blockchain, Polygon has seen NFT transactions rise 1,648% from the first week of December to the second, according to The Block’s Data Dashboard. 

© 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.

Two large entities effectively decided the Sushi DAO vote to direct all fees generated by the SushiSwap decentralized exchange to the protocol’s treasury.

The move will mean that sushi token holders will no longer receive rewards from trading fees on the exchange for a year or so, with the fees going to the project’s treasury. The reasoning is that the entity behind SushiSwap needs more funding in the short term while it improves its long-term plan for sustainability.

GoldenChain, the digital investment arm of venture capital outfit Golden Tree, and a wallet closely tied to crypto trading firm Cumberland were the two entities. Together, they contributed 10 million sushipowah tokens — the Sushi DAO governance token — to push through the vote, according to data from the Snapshot voting page. Their combined voting power accounted for 91% of the 11 million tokens that were cast in support of the plan.

Those not in support cast 7.5 million sushipowah tokens, amounting to 41% of all votes in the pool. It should also be noted that 85% of these votes came from three wallets. They contributed 2.9 million, 2.4 million, and 1.1 million sushipowah tokens, respectively.

In total, these five large entities — voting both for and against — controlled 88.5% of all votes. This leaves little more than 10% of the vote to the remaining 774 wallets that also participated, albeit with little influence.

Previous Sushi DAO votes had seen fewer than 400 wallets participating in the process. This uptick in voting figures is likely due to the contested nature of the proposal.

A controversial proposal

Numerous DAO participants have shown their disagreement with the plan on the Sushi Dao forum. This is because the proposal takes away the reward given to users who stake their sushi tokens. They have also raised concerns over the fact that whales like GoldenChain have been able to dictate the outcome of the vote.

GoldenChain justified its decision to vote in favor of the proposal. Posting on the DAO forum, GoldenChain stated that the move was necessary to ensure SushiSwap’s long-term stability. GoldenChain did, however, call for more clarification on the way the move will be implemented.

Sushi Head Chef Jared Grey introduced the proposal earlier in December. At the time, he stated that the move would last for one year or until the protocol adopts a new tokenomics model. Sushi is considering a pivot to the vote escrow tokenomics system. In this model, token holders are incentivized to lock up their assets for a long time to receive rewards.

The Sushi DAO’s treasury is currently worth $12 million. Most of the protocol’s holdings are in its native token, sushi. The DAO also holds $208,000 in the USDC stablecoin.

© 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.

Joseph Edmund Johnson, brother of former UK Prime Minister Boris Johnson, resigned from his advisory role to a subsidiary company of the crypto exchange Binance, the Telegraph reported. 

Joseph Johnson has been an adviser of the Binance-founded payment tech company Bifinity, launched in March of this year. He had been in that position since September but stepped down last week due to increasing demands of transparency from Binance, according to the Telegraph. 

UK regulators banned Binance from operating financial services in June of this year. The Financial Conduct Authority, the UK’s financial watchdog agency, asserted that the firm lacked the authorization to conduct regulated services in the UK.  Binance sought the proper regulatory licenses in November, The Block previously reported.

Binance CEO Changpeng Zhao has defended the company’s finances by stating the firm has “assets to convert” and maintains no loans or liabilities. 

© 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.

CME Group and CF Benchmarks launched new DeFi reference rates and real-time indices for Aave, Curve, and Synthetix.

The reference rates and real-time indices are not tradeable products, but transparent pricing for the three DeFi tokens will help users accurately mark crypto specific portfolios and develop structured products with greater confidence.

“These three new benchmarks, together with Uniswap launched earlier this year, will capture more than 40% of the total value locked in DeFi protocols on the Ethereum blockchain,” CME Group Global Head of Cryptocurrency Products Giovanni Vicoso said earlier in the month.

Several crypto exchanges and trading platforms including Bitstamp, Coinbase, Gemini, itBit, Kraken, and LMAX Digital will provide pricing data for the new benchmarks. The reference rates will be calculated and published once per day, while the real-time indices data will be published once per second.

© 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 majority a16z’s most recent crypto fund is still to be deployed, general partner and crypto fund founder Chris Dixon said in an interview on The Block’s podcast The Scoop.

The latest $4.5 billion fund, known as “Crypto Fund 4,” launched in May and dedicated $1.5 billion to seed investments and $3 billion to venture investments.

“We’ve deployed less than 50%, so we have the majority of our recent fundraise left,” Dixon said.

The firm is a titan in Silicon Valley, having raised a total of $7.6 billion for the sector after launching its first crypto fund four years ago. It has most recently backed crypto startups which include Aztec, Mysten Labs and Yuga Labs. It’s also known for big bets on crypto startups such as Anchorage Digital, Sky Mavis and Coinbase.

“Our venture funds have a minimum of 10-year lifespan, which means if you decide you want to invest in our fund,  you make a commitment to us with money, and you’re locked up for at least 10 years — and honestly it’s usually 15 years and we extend it,” Dixon said on the podcast. He also drew a distinction with crypto hedge funds, which he said don’t have the same flexibility to extend deployment.

HODLing tokens

Dixon said the funds have kept 95% of everything they’ve ever invested in.

He said that crypto investors who believe that a16z has told its token investments misunderstand the firm’s venture model.

“All of our data shows that the vast majority of the returns come in the later years of the funds, and the worst thing you can do in venture capital is sell good assets too early,” Dixon said.

The ebbs and flows ultimately don’t affect the firm’s model, he added.

In October, The Wall Street Journal reported that a16z’s flagship crypto fund had dropped 40% in value in the first half of this year.

Navigating FTX unscathed 

The venture firm was relatively unscathed from the collapse of FTX, while many other players such as Coinbase Ventures and Sequoia were left licking their wounds and writing down their investments in the collapsed exchange to zero.

“We never really, frankly, took it seriously,” said Dixon, describing his experience with FTX and his only meeting with founder and former CEO Sam Bankman-Fried.

a16z had previously invested in Coinbase, and Dixon said used his knowledge from that investment to inform his thought process about other exchanges. He said he saw a “whack-a-mole” pattern frequently form where new off-shore exchanges would crop up and then disappear each cycle.

“For me, it was just like what’s the tech innovation?” Dixon said. “What’s new? It’s Coinbase without compliance, security and finance based in an offshore place.”

Identifying tech innovation is at the heart of a16z’s thesis, Dixon said, noting that it doesn’t mean there won’t be train wrecks in the portfolio.

“If you don’t have on-chain trust, and you don’t have off-chain regulated trust, I wouldn’t put my money there,” he said.

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.

Arrakis Finance, a decentralized market-making protocol, raised $4 million in a seed funding round.

Investors included Uniswap Labs Ventures, Accel, Polygon Ventures and Robot Ventures. There was no lead investor in the round, and it was secured via a simple agreement for future tokens (SAFT), Ari Rodriquez, co-founder of Arrakis Finance, told The Block. The round started in May and closed in September, Rodriquez added.

Arrakis Finance was established last year by Rodriquez and Hilmar Orth, both formerly of Gelato Network, a popular tool for developers to automate smart contract execution on Ethereum. Orth was a co-founder of Gelato, and Rodriquez was a senior smart contract engineer. The duo launched the first version (V1) of the Arrakis Finance protocol in April last year, which allows running algorithmic strategies on Uniswap V3.

Arrakis Finance plans to grow its current team of eight people and continue building its protocol with the fresh capital, Rodriquez said.

The funding for Arrakis Finance comes amid recent demises of centralized market makers such as Alameda Research and Three Arrows Capital. Arrakis is not the only market maker that has raised funds recently. Last month, crypto market maker Keyrock raised $72 million in a Series B funding round. In June, Flowdesk raised $30 million to expand its crypto market-making services.

“Arrakis V1 quickly became the go-to venue for deploying liquidity on Uniswap V3, with over $1.8 billion total value locked or TVL accounting for 25% of all liquidity on the protocol at its peak,” Rodriquez said. “The most common use case for V1 vaults were managing tightly pegged pairs, for example, stablecoins like DAI-USDC.”

Last week, Arrakis Finance launched V2 of its protocol, which can be “thought of as an abstraction layer on top of concentrated liquidity automated market makers (AMMs) like Uniswap V3,” Rodriquez said. “It enables central limit order book (CLOB) like interactions.”

© 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.