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The returns available on crypto holdings have fallen to their lowest levels in more than a year on some platforms as institutional demand to borrow recedes, diminishing one of the market’s most attractive selling points for smaller investors. 

Crypto lending platforms such as BlockFi and Celsius have experienced staggering growth since 2020, attracting millions of customers by providing yields to individual investors that have ranged from a few percent to as high as 17%. 

These platforms take deposited funds and lend them to institutional investors, returning most of the yield to their customers. Through this business, BlockFi saw assets under management increase by 1,711% in 2020 alone, according to the company. 

Rivals Nexo and Celsius have also seen big growth, with the latter increasing its assets under management by more than 1,900% in less than a year, according to a news release from the company. 

As of March 2021, BlockFi held $14.7 billion in assets through its BlockFi Interest Account, while competitors Nexo and Celsius advertise present holdings in excess of  $12 billion and $20 billion respectively.

Now, many of these companies are cutting the returns they pay to clients as borrowing demand from institutions wanes in the face of stagnating crypto prices. 

BlockFi, for example, used to offer 6.25% to those holding more than one bitcoin. Now, it offers between 1% and 3% on up to 0.35 bitcoin, and 0.1% additionally on greater amounts. Similarly, Celsius has gone from offering 6.2% to 3.05%.

The slide is also affecting returns on investments in stablecoins, crypto tokens that are meant to track the value of fiat currencies such as the US dollar. 

Crypto lending platforms BlockFi and Ledn both dropped stablecoin rates at the start of this month, as they fell to 7% from 7.25% and to 7.5% from 8% respectively (for all stablecoins they both offer, except for USDT for BlockFi). In March, Celsius lowered its savings rates on all stablecoins, except DAI, to 7.1% from 8.5%. 

Why is institutional demand dropping?

In Ledn’s update on its rate cut at the beginning of May, it provided a few reasons why institutional demand to borrow crypto — the driver of consumer yields — is decreasing.

For a start, institutional traders find it easier to profit from a crypto market that’s in a state of contango, when the price of futures contracts is higher than the current spot price.

A contango allows traders to profit from buying spot bitcoin while simultaneously taking a short position through options or futures. A fading contango equals decreasing demand to borrow to fund such trades.

Ledn also said it’s seeing fewer arbitrage opportunities across crypto exchanges, affecting demand from market makers. 

Market makers borrow digital assets to exploit price arbitrages across exchanges. For example, bitcoin purchase prices may vary from one exchange to another, creating an opportunity for institutions to exploit the price difference for profits.

Ledn’s rates update notes that the average spread on a $1 million dollar buy order for bitcoin on Coinbase and FTX has halved over the last 3 months. It has gone from around 0.16% in February to 0.08% at present. This affects the return institutions can make from arbitrage trading and in turn lowers the propensity to pay higher borrowing costs.

Joe Hickey, head of trading at BlockFi, echoed these points and told The Block that while there is still a lot of demand for crypto loans, key indicators including the implied rate and open interest, the total number of open futures contracts, are substantially lower than last year. Those are bearish signals.

Despite rates dropping, Hickey predicted that yields will bounce back. “People are continuing to invest and I think it’s kind of a short-term phenomena and that we’re going to see yields in the second half of the year going higher again.”

How rates have changed

For now, however, rates have begun to fall for stablecoins and other major crypto assets. Ledn’s rates for all USDC balances fell to 7.5% from the beginning of May from highs of 9.25% in March. Meanwhile, BlockFi also dropped stablecoin rates, excluding USDT, to 7% from 7.25% for the same period. On March 4, Celsius had lowered its savings rates on all stablecoins, except DAI, to 7.1% from 8.5%. 

Ledn’s rates on bitcoin balances up to 0.1 bitcoin fell to 5.25%, and to 2% for all balances greater than that from May, while BlockFi also dropped rates for bitcoin and ether to 3% from 4%, in line with a cut Celsius implemented in March.

Elsewhere, Crypto.com has announced changes to the allocations and tier structure of its rewards feature from June 1. Currently, it splits its earn feature into two tiers: the first offers full rewards rates on allocations less than or equal to $30,000, while the second tier offers 50% rewards above that threshold. 

From the first of June, the threshold for the first tier will drop 90%, with full rewards rates offered only on allocations up to and including $3,000 for tier one, while tier two will receive the remaining $27,000 worth of allocations at 50% of the tier one rate. Once both of these tiers are full any subsequent allocations will fall under tier three and receive 30% the tier two rate.

Still, yields had remained high on decentralized lending platforms including Anchor — which was supposed to pay out 19.5% to lenders of Terra USD (UST). However, after last week’s collapse of UST,  a stablecoin at the heart of the Terra network, investors hunting for yields may have to resign themselves to lower returns from both centralized lenders and decentralized platforms.

© 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.

Crypto bridge Wormhole paid out a massive $10 million to a white hat hacker who disclosed a bug in its core bridge contract on Ethereum in February.

That person goes by the pseudonym satya0x, per an announcement from Immunefi, which partnered with Wormhole in hosting its bug bounty platform.

Wormhole announced the program back in February, shortly after losing close to $323 million in ETH to a hacker, in one of the largest exploits of a DeFi protocol to date. Soon after, it restocked its blockchain bridge, also offering the attacker $10 million if the funds were returned.

Wormhole’s program offers bounty rewards in tiers according to how serious the threat is. For instance, a “low” level smart contract bug can earn someone up to $2,500, while a “critical” one can lead to a prize of up to $10 million — the exact amount that satya0x was awarded.

“Wormhole is sending a clear message with this payout to the best, most talented whitehats on the planet that if they responsibly disclose security vulnerabilities to Wormhole, they’ll be well taken care of,” Immunefi said.

Immunefi said that no user funds were lost before the bug was reported, as Wormhole was able to quickly respond to it, verifying and fixing the issue on the same day (February 24). 

In a statement shared by the crypto platform, satya0x said that the challenges of blockchain security are an “existential threat” to its future.

“I am proud to have played a role in mitigating a serious vulnerability and a systemic threat to the ecosystem,” satya0x said.

The bug was related to Wormhole’s ability to upgrade smart contracts. Essentially, it could potentially allow a hacker to take control of those contracts. In a blog post, Immunefi provided a detailed breakdown of the issue that led to the security vulnerability and how it was fixed.

Satya0x also said: “If we fail to recognize and aggressively reduce systemic risk; if we fail to provide the transparency and tooling needed for users to make informed decisions; if we continue to condemn simple mistakes while praising Total Value Lost as the sole measure of success — we risk enabling the reemergence of the very power structures we seek to destroy.”

© 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.

As another week came to a close, most bitcoin miners’ stocks were once again down by the end of Friday’s trading session.

Argo, for instance, saw its stock drop by -10.55% on the London Stock Exchange and -9.8% on Nasdaq. On the other side, Stronghold Digital Mining’s stock rose by +12.45%.

Bitcoin’s value was close to $29.300 as of press time.

Here’s how crypto mining companies performed on Friday, May 20:

© 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.

Arthur Hayes, one of the founders of crypto exchange BitMEX, avoided jail time Friday during his sentencing hearing in New York.

Hayes was handed a sentence of six months of home detention as part of a two-year probationary period. He had previously pleaded guilty to violating the US Bank Secrecy Act (BSA).

“I’m ready to turn the page,” Hayes said before the sentencing hearing. 

The prosecution had asked for sentencing above the 6-12 months that normal guidelines recommend.

“Hayes profited greatly from BitMEX, personally earning over one hundred million dollars, while willfully and continuously operating the Company in violation of the BSA, by failing to implement an anti-money laundering (“AML”) program,” the prosecution in a May 9 letter to the court.

Hayes, for his part, asked the court to give him probation with the option to travel in the lead up to sentencing. When the Do unveiled its initial case, Hayes, an American national, was living in Singapore. From there, his legal team negotiated his return to the US. 

Hayes’s case has been the subject of enormous interest from the crypto industry since the Commodity Futures Trading Commission and Department of Justice filed joint civil and criminal enforcement actions against BitMEX and its executives near the end of 2020. 

© 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.

Bakkt’s chief financial officer is leaving the firm next month after a little over a year with the Georgia-based crypto startup.

Announced on Friday, the exit of Drew LaBenne is the latest big-name departure for the firm, which saw its president and early employee Adam White leave at the end of 2021. The firm’s chief accounting officer Karen Alexander is stepping into the role on an interim basis. Alexander previously worked at GE Capital in finance and accounting roles. 

In an employee communication obtained by The Block, the firm said:

“Earlier this week, Drew LaBenne informed me that he will be stepping down as Chief Financial Officer of Bakkt next month. Drew has been a fantastic leader, shepherding our Company through several pivotal moments – our public listing, building out our finance & risk organizations, telling our story to investors, and much more.”

Bakkt first entered the market in 2018 with plans to launch a slate of digital asset tied initiatives — namely, bitcoin derivatives — and has since launched its own retail application that supports crypto purchases and allows users to convert certain reward points into cash. Bakkt also offers its technology to third-party businesses and merchants, enabling them to offer crypto-related services to their end clients. 

Bakkt was originally bootstrapped by exchange giant Intercontinental Exchange and its first chief executive officer Kelly Loeffler, the wife of ICE CEO Jeff Sprecher. Loeffler left the firm in 2019 when she was tapped to fill one of Georgia’s seats in the US Senate. 

LaBenne — who joined Bakkt in 2021 – previously served as chief financial officer of Amalgamated Finance Corp from 2015 to 2021. He previously worked at banking giant JPMorgan as the chief financial officer of its banking business from 2013 to 2015, according to his biography on Bakkt’s website. 

LaBenne also led the firm’s efforts to go public, according to the memo. 

A spokeswoman for the firm said, “We greatly appreciate Drew’s contributions to Bakkt during a pivotal time for the company and thank him for his service.”

“We are confident that Karen Alexander, formerly the Chief Accounting Officer of Bakkt, is well-positioned to step in as interim CFO, given her extensive financial expertise and deep understanding of Bakkt,” the spokeswoman continued.

The exit comes amid a significant drawdown in Bakkt’s share price, which has been under pressure alongside other US equities in the crypto and technology sectors.

Shares in Bakkt are down more than 70% this year, trading at about $2.46 a share—down from an all-time high above $40 last year. 

© 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.

Quick Take

• This weekly series explores the most interesting insights in NFTs, blockchain gaming, and virtual worlds
• While NFT liquidity has dried out on Ethereum over the last week, it has started to flourish on Solana
• In support of more sophisticated NFT trading strategies, more elaborate financial tools have been developed

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Popular NFT marketplace OpenSea just launched a new marketplace protocol to buy and sell NFTs. 

The news, which was first made apparent by an address linked to OpenSea on Etherscan earlier Friday, was confirmed in a blog post by the company.

The protocol, dubbed Seaport, allows users to acquire NFTs in a range of new ways.

Bidders who use Seaport can bundle different assets in exchange for an NFT, unlike now where only crypto can be exchanged for an NFT.

For example, “say you own a 40 ETH doodle and you want a 100 ETH ape. You can offer your doodle NFT and 60 ETH,” said Steven Zheng, director of research at The Block.

Other tools, like SudoSwap, which lets a user barter for NFTs, offer this type of functionality today. But this feature is now becoming native to OpenSea. 

Seaport will now also let people bid on specific traits from a collection. This is for cases whereby the bidder doesn’t care what kind of NFT they get, as long as it features a trait they’re looking for. For example, users who collect smiling NFTs can bid on any smiling Bored Ape from the collection. 

The marketplace will also now allow tipping. 

“A fulfiller may include additional consideration items when fulfilling a listing as long as they do not “tip” more than the original offer,” said the statement from OpenSea. “This allows alternative interfaces to include their own fees.”

OpenSea doesn’t control the protocol, positioning it as a shared and open resource for developers.

© 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.

New York’s financial regulator is accelerating its work on crypto business licensing.

Speaking with The Block on May 19, Adrienne Harris, the superintendent of New York’s Department of Financial Services promoted her work on expanding the DFS’ licensing regime for crypto firms — famous under the moniker “BitLicense.”

“Before my coming into DFS, the average time was up to a couple of years. We’re already moving much much faster. We’ve done three licenses this year, soon to do a fourth, compared to one in all of 2021,” Harris said.

The one authorized in 2021 was Bakkt. Another BitLicensee, Xapo, gave up its license and left New York in January 2022, weeks before Harris’ confirmation.

The queue to get a BitLicense has been a longstanding grievance among the crypto industry, especially given New York’s status as the global financial center.

“It’s no secret that the licensing and business filings have taken too long,” Harris said at an earlier fireside chat at Chainalysis’ LINKS conference.

Initiatives aimed at fixing those delays include updating the public guidelines for BitLicense applications to explain which ones the DFS will consider incomplete.

Harris is also prioritizing crypto-related hiring, aiming to triple the size of DFS’s virtual currency team in 2022. But she also notes a lot of potential for operational streamlining.

Depending on who you ask, New York’s state BitLicense is the gold standard in crypto licensing or a case study in burdensome regulation. Introduced in 2015, only 22 firms hold such licenses, including PayPal’s conditional license which is contingent on its close partnership with Paxos.

Nine crypto companies hold special purpose banking charters, which allow those firms to do business and transmit money in New York. They can also take on fiduciary responsibilities, which legally requires a high degree of concern for a client’s well-being.

The BitLicense framework as drawn criticism over the years. At an April 26 keynote, New York City mayor Eric Adams called for an end to the BitLicense. A lawsuit in New York aimed to abolish the BitLicense. Former US presidential candidate Andrew Yang’s policy platform, which was celebrated for its encouragement of crypto, highlighted the BitLicense as an example of state regulation gone wrong.

Harris was unfazed. “We see the demand for the BitLicense and the limited purpose trust continue to go up,” she said, explaining:

“New York had the first banking law in the country, before there was federal banking law there was new york banking law in the 1800s. And Wall Street is here in New York. It’s not in DC. We have a great regulatory regime. We’re going to improve the operation of it, but the regs themselves I think are wonderful.”

Good actors, she says, want regulation, including what she called “bespoke supervisory requirements” that the DFS sets up for individual firms. “That’s why almost half of venture capital investment in crypto last year was in New York-based companies,” she said.

© 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 co-founder and CEO of Aptos Labs, the Layer 1 blockchain startup founded by former Diem employees, faces a lawsuit from an early investor alleging she was cheated out of her fair share of equity. 

Shari Glazer and her firm Swoon Capital are seeking up to $1 billion from Matonee, also known as Aptos Labs, according to a complaint filed with the Supreme Court of the State of New York in March.  

Aptos Labs was founded by former Meta employees with the goal of building a scalable Layer 1 blockchain, able to reach an audience of “billions” of people. The technology is based on the Diem payments network, which Aptos’s founders worked on while at Meta, the parent company of Facebook. 

Glazer and Swoon claim that a “fraudulent scheme” implemented by Aptos co-CEO Mo Shaikh, deprived her of her rightful share of a partnership in a “blockchain technology venture,” according to the court filing. Avery Ching is the co-founder and CTO. 

Shaikh and his lawyers at Quinn Emmanuel are seeking to have the case dismissed, the filings dated May 17 show. 

“Avery and I founded Aptos Labs to provide universal access to a blockchain that meets the needs of billions of people globally,” Shaikh wrote in an emailed statement. “Shari Glazer’s allegations are filled with material inaccuracies and mischaracterizations that attempt to take credit for the work of others.” 

“Our team has been working for years to develop and perfect a reliable, scalable and upgradable Layer 1 blockchain technology, which is why we will vigorously fight these baseless accusations.”

Glazer, whose family owns a global sports empire including the Tampa Bay Buccaneers NFL team and Manchester United soccer club, says she had taken Shaikh on as a consultant in August 2021 and paid him $35,000 to identify existing blockchains that Swoon Capital or Glazer could acquire and repurpose for her own project.

Shaikh had later suggested that he assemble a team of engineers to develop a new, scalable blockchain, the legal document says. Glazer agreed, and also said that Shaikh would be an equal partner. The agreement progressed with Glazer saying she would introduce him to her network, the document adds. Glazer also says she helped convince some of the engineers to join the new venture by laying on entertainment and an expensive lunch for them.

Lawyers for Glazer declined to comment on ongoing litigation. 

Aptos had announced in March that it had been funded to the tune of $200 million in a round led by Andreessen Horowitz (a16z) with other investors ranging from Multicoin Capital to Coinbase Ventures. Katie Haun, Three Arrows Capital, ParaFi Capital, Irongrey, Hashed, Variant, Tiger Global, BlockTower, FTX Ventures and Paxos also joined the round. 

At the time, while not disclosing numbers, Aptos founders told TechCrunch they were “well off into the unicorn territory,” indicating that the company was valued at a minimum of $1 billion.

The complaint states that before the funding round, Glazer agreed to make an initial $10 million investment in the venture (or more if necessary), and secured an additional $10 million financing commitment from a global media and entertainment conglomerate.

Glazer says that the deal she and Shaikh had in progress meant the project would progress without venture capital funding, as this type of investment would dilute ownership. 

While this was happening, Glazer alleges that Shaikh was secretly seeking dilutive, early stage VC funding from a16z, even though he previously said he was not pursuing an investment from the firm because “VCs are the devil.” 

Still, documents submitted by Shaikh’s lawyers call Glazer’s claim a “work of fiction” and publish WhatsApp messages and redacted transcripts of affidavits made by Glazer on the particulars of the case. 

They had argued messages between Shaikh and Glazer show he had said much of the talent he was trying to hire for the new company would need to be paid north of $1 million a year, so the amount Glazer was proposing would not be enough. 

The WhatsApp transcripts show he told her that the company would need “$75m-$100m” to launch. He also named the VCs he was speaking with about the project. 

The documents also cast doubt on the timeline of events and argue that detail was lacking about the distribution of shares in the future company, had the the media and entertainment conglomerate Glazer mentioned also been brought on board. 

It also argues the agreement was an oral amendment to Shaikh’s consulting agreement, which can only be amended in writing. 

If the case is not dismissed it could mean a protracted legal battle for the new company. 

The case is being pushed through the Supreme Court of the State of New York and is index number 650956/2022. It is known as Glazer, Shari et al vs. Shaikh, Mohammad et al.

© 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.

Luxury Swiss watch brand TAG Heuer will now accept cryptocurrency as payment on US websites. 

TAG Heuer will accept 12 cryptocurrencies at checkout, including Bitcoin, Dogecoin, Ethereum, Litecoin, Shiba Inu, and 5 USD-pegged stablecoins. The brand will work with the support of BitPay, a bitcoin payment services provider, on transactions up to $10,000, with no minimum spend required. BitPay works by converting cryptocurrency to fiat money, which is ultimately what TAG Heuer receives.

“We have been following cryptocurrency developments very closely ever since Bitcoin first started trading. As an avant-garde watchmaker with an innovative spirit, we knew TAG Heuer would adopt what promises to be a globally integrated technology in the near future despite the fluctuations— one that will deeply transform our industry and beyond,” said Frédéric Arnault, CEO of TAG Heuer, in a statement. 

Fashion brands have increasingly been experimenting with crypto payments, despite recent instability and risk involved in the space. Last week, TerraUSD stablecoin and its sister token Luna fell to a record low. Bitcoin’s price also fell to a low of $30,311.99, down over 30% since the start of the year.

Gucci and fashion label Off White also started accepting crypto as a payment method this year.

For fashion brands, including TAG Heuer, this can be a challenge when considering refunds. Returning a TAG Heuer watch means BitPay would convert the dollar amount to cryptocurrency at the going market rate to give it back to the customer. Gucci, which announced accepting crypto in select stores across the US earlier this month, also issues returns using the same cryptocurrency an item was purchased, but converts the value to the going rate at the time of the refund, according to detail obtained by Vogue Business. 

Despite the volatility in crypto, this is just one of many upcoming Web3 experiments for TAG Heuer, and LVMH brands more broadly.

“As a luxury brand we had to ensure that our entrance into Web3 would meet our standards of excellence and thanks to our nimble teams in-house and with the support of BitPay we are able to dive into this new financial world in the best way possible. This new crypto payment feature is just the beginning of many exciting projects for TAG Heuer in the Web3 universes,” said Arnault, son of billionaire Bernard Arnault, who serves as the chief executive of LVMH.

TAG Heuer will support more than 100 different crypto wallets and exchanges, including Coinbase, Ledger Wallet, Metamask, Crypto.com, Gemini Wallet, Binance, and others. 

© 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.