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Nearly a decade ago, IEX Group set out to transform markets by launching a new kind of trading venue to topple traditional equity venues. Now, the firm made famous by Michael Lewis’ “Flash Boys” is partnering with FTX in an attempt to put crypto on an equal footing with traditional finance.

In an announcement Tuesday, the New York-based firm — which gained securities exchange status in 2016 — said that Sam Bankman-Fried’s FTX.US has agreed to make a strategic investment in the firm. The investment partnership will help IEX, which has struggled to take market share from US equity behemoths like New York Stock Exchange and Nasdaq in US stock trading, work towards creating a framework for crypto market structure. 

The firms did not disclose terms, but the transaction is subject to regulatory approvals under the so-called HSR Act, which suggests that it is larger than $100 million.

Similarly to FTX, IEX gate-crashed US equities as a relative newbie. It vied to topple the NYSE and Nasdaq with a new market structure and speed-bump that would slow the access high-speed traders had to the market, while also offering market data feeds with zero cost. FTX also entered a market — albeit an unregulated one — dominated by incumbents like Binance and BitMEX.

IEX hopes that the partnership with FTX.US will set the foundation for a regulated, well-defined crypto market structure. Though it remains unclear what concrete steps the two will take to accomplish this.

“A mutual investor of IEX and FTX put us together,” IEX CEO Brad Katsuyama told The Block. “Sam and I met last year and we saw eye to eye on how important it is to help get regulation right. We decided we wanted to work together and find a way to make that happen and develop a clear market structure.”

Katsuyama said that he will play a big part in shaping its crypto efforts, noting that it is a “big priority” for the firm. 

It’s not exactly clear what IEX could build as it scales its crypto team, but Katsuyama noted that it could seek to serve as a bridge between the world of cryptocurrencies and digital asset securities. In Katsuyama’s view, there are not proper on-ramps for individuals to trade cryptocurrencies that could be deemed securities by regulators. 

“Being a digital asset securities renders you illiquid,” he said. “That on-ramp needs to be built… This is an ongoing regulatory discussion but it is one that IEX will be part of in the next number of years.”

Notably, XRP — the cryptocurrency most closely affiliated with fintech firm Ripple — has found itself in the crossfire of regulatory uncertainty, triggering its delisting from a number of exchanges as well as a suspension of trading among the industry’s brokers. 

“It’s ultimately the SEC’s decision to determine what is and what isn’t a security,” Katsuyama said. 

But IEX could help serve as a technology partner to help address that gap, according to Katsuyama. In a sense, IEX is a kindred spirit to crypto exchanges, which operate in a relative murky regulatory environment. The firm drew the ire of its peers in the market structure ecosystem when it sought out its exchange license and unique speed bump. 

 In the near-term IEX will focus on working with FTX.US on developing market structure principles for crypto. 

On the general practice of crypto exchanges offering crypto market data for free, Katsuyama said that this is an example of a crypto practice that is superior to trading exchanges in stocks.

“You want to make the market accessible, you want to make the price affordable,” he said.

That’s not common in equity markets, where IEX has long stood as a sole exchange offer free data, but recently changed its position to offer data at what it views as reasonable prices. 

FTX.US recently made headlines for nabbing a multi-billion dollar valuation in a deal backed by firms like Temasek and Paradigm. IEX counts a wide-range of well-known investment firms like Goldman Sachs, Franklin Templeton, and Spark Capital. The firm to declined to shared its valuation under the upcoming deal with FTX. 

© 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.

Convex Protocol, a platform that boosts rewards for those using the Curve stablecoin, has mitigated an issue that could’ve resulted in a $15 billion rug pull.

Rug pulls occur when seemingly legitimate cryptocurrency projects abscond with investor funds. It’s become a considerable problem in the decentralized finance space in the past year. 

OpenZeppelin, a blockchain security firm, uncovered a significant vulnerability during a security audit for Coinbase of the Convex Finance protocol. The firm found that if two of the three multi-signature wallet signers of the Convex executed a specific series of steps, they could gain access to a pool of liquidity provider tokens. OpenZeppelin detailed the steps in a post. 

Because Convex holds the majority of Curve Finance’s CRV stablecoins in circulation, considerable funds were at risk. The vulnerability could allow Convex’s anonymous developers — in the form of two of three multisig signers — to gain control over Convex’s locked value, which at the time was about $15 billion. 

The bug could only be exploited or patched by Convex’s development team, which OpenZeppelin said made the disclosure process complicated. The security firm said it was reasonably sure that the issue was unintentional, meaning developers didn’t know about the vulnerability or have the intention of absconding with funds, but if the firm was wrong, the fallout of alerting the very people with the power to conduct the rug pull had the potential to be disastrous. 

Ultimately, OpenZeppelin said it attempted to obtain assurances that the vulnerability would not be exploited ahead of describing the vulnerability to the Convex team. They used bug bounty partner Immunefi as an intermediary. 

Since then, the bug has been patched. The vulnerability was never exploited and no funds were ever lost. Convex posted additional resources breaking down the multisig weakness in its public documentation. 

© 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.

Swedish gaming startup GOALS today announced a $15 million seed funding round led by venture capital firm Northzone. 

GOALS is developing an eponymous online multiplayer game that has a play-to-own mechanism for in-game assets such as players, clubs, and skins. Following in the footsteps of fantasy soccer platform Sorare, these will be stored on a blockchain network as non-fungible tokens (NFTs) — a unique code that signifies ownership. 

“With FIFA you only own the skins for a limited period of time,” explained founder Andreas Thorstensson, previously founder of e-sports organization SK Gaming and partner at EQT Ventures. “You can’t control them, you can’t sell them and you don’t have transparency — blockchain is the perfect solution to this.”

Being free-to-play, the game will rely on taking a cut on every NFT marketplace sale alongside monetizing via add-ons that don’t hinge on a user volunteering to sell their assets. 

Choosing a chain

The company spent the last four months exploring which blockchain network to build on top of. Proof-of-stake networks like Polygon, Starkware, and Solana are currently at the top of the food chain. 

Every user of GOALS owns fifteen players — each of which are minted as NFTs and stored. Depending on user count, this could amount to a large number of NFTs — and Thorstensson said that it’s important that the supporting network is not only cost-efficient but also a low-emission network. 

He said he isn’t put off from exploring developing a sidechain of Ethereum such as Ronin, the blockchain underpinning Axie Infinity. Last week, Ronin was hit by a $600 million exploit that targeted the Ronin bridge, which connects Ethereum to the sidechain. 

“First of all, bridges are a security risk,” he admits, noting that the hack will likely facilitate increased focus on securing bridges. “From a security standpoint, we just need to make sure that the chain is very decentralized and that there are enough nodes and validators [to ensure majority control].” 

The end goal

Thorstensson said he’s aiming to capture a non-crypto native audience. That’s why he passed on working with specialist crypto funds that he says “make a better fit for companies that go deeper into tokens” in favor of generalist equity-based funds with a strong web3 element. 

With the new financing, the company will recruit another 30 game developers, coinciding with a form of public release by the end of 2022. 

© 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 Securities and Exchange Commission is considering new firewalls for custody and market-making businesses at crypto firms and pushing for more SEC oversight of stablecoins.

During an April 4 speech to the University of Pennsylvania’s law school, SEC chair Gary Gensler said: 

“Unlike traditional exchanges, currently centralized crypto trading platforms generally take custody of their customers’ assets. Last year, more than $14 billion of value was stolen. I’ve asked staff how to work with platforms to get them registered and regulated and best ensure the protection of customers’ assets, in particular whether it would be appropriate to segregate out custody.”

Gensler continued to apply similar logic to crypto exchanges’ market-making functions, many of which trade with users on their own platforms from their own accounts. 

Elsewhere in the speech, Gensler expressed concerns about stablecoins, appearing to call out USDT and USDC in all but name for their lack of redemption rights: 

“The three largest stablecoins were created by trading or lending platforms themselves, and U.S. retail investors have no direct right of redemption for the two largest stablecoins by market capitalization. There are conflicts of interest and market integrity questions that would benefit from more oversight.”

Stablecoins have been at the center of regulatory attention in the US for much of the past year, especially since the President’s Working Group on Financial Markets put out its report calling for stablecoin issuance to be restricted to “insured depository institutions” in November. The largest, Tether’s USDT, has faced particular scrutiny for its operational opacity. 

Since confirmation as chairman, Gensler has consistently pushed for broader SEC authority over crypto exchanges, generally arguing that they already fall within the SEC’s mandate without the need for new laws. “We ought to apply these same protections in the crypto markets,” he said to conclude today’s speech. 

© 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 

• $555mm Nov-21 Series A at a $3.4bn valuation 
• +$2.0bn in transaction volume since inception 
• +160 Supported Countries; +80 Supported Cryptocurrencies; +30 Fiat Currencies; +250 Partner Integrations

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A new report from the Intergovernmental Panel on Climate Change (IPCC) released Monday contained dire warnings about future climate risks.

The report from the IPCC, an intergovernmental panel within the United Nations, was the third in a series of reports examining the state of climate change mitigation efforts. The panel said in a statement Mondy that “[w]ithout immediate and deep emissions reductions across all sectors, limiting global warming to 1.5°C is beyond reach.”

Included in the more than 2,000-page report were a pair of mentions of cryptocurrency networks as a carbon emissions risk. 

As per the report, “large improvements in information storage, processing and communications technologies, including artificial intelligence, will affect emissions. They can enhance energy-efficient control, reduce transaction cost for energy production and distribution, improve demand-side management…and reduce the need for physical transport.”

“However, data centres and related IT systems (including blockchain) are electricity-intensive and will raise demand for energy — cryptocurrencies may be a global source of C02 if the electricity production is not decarbonized — and there is also a concern that information technologies can compound and exacerbate current inequalities.” 

But governments play a key role in determining whether technology reduces or increases emissions, the authors note. “Overall, the challenge will be to enhance the synergies and minimize the trade-offs and rebounds, including taking account of ethical and distributional dimensions.”

Later, the report states that “digitalization, automation and artificial intelligence, as general-purpose technologies, may lead to a plethora of new products and applications that are likely to be efficient on their own but may also lead to undesirable changes or absolute increases in demand for products.” This section later goes on to state:

“The energy requirements for cryptocurrencies is also a growing concern, although considerable uncertainty exists surrounding the energy use of their underlying blockchain infrastructure.” 

© 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.

Over the weekend, a spat broke out between Sasha Ivanov, founder of the Waves blockchain, and trading firm Alameda Research. 

Ivanov is alleging underhand dealings, while Alameda seems to imply that it’s simply been taking advantage of high funding rates to make some money. But irrespective of what actually happened, the dispute has led to a controversial proposal within the Waves blockchain community — one designed to hurt Alameda but that could also have a big impact on anyone who trades the project’s native token.

At the same time, a stablecoin that’s supposed to be pegged to the WAVES token has lost its peg — provoking further concerns that things are amiss in the Waves community.

How it all started

The outcry began when Ivanov accused Alameda of manipulating the price of WAVES.

Ivanov claimed that Alameda borrowed funds on Vires Finance protocol to short WAVES and further accused the firm of trying to campaign against the token in order to encourage other traders to sell it, boosting the supposed short position.

The proof? Ivanov claimed he found an address on the Waves blockchain he linked to Alameda that had borrowed over $30 million in WAVES. He reckoned the funds were being used to short the token.

FTX CEO Sam Bankman-Fried — who founded Alameda in 2017 and was its CEO until October 2021 — denied the accusations, calling them a conspiracy theory.

We have reached out to Waves and Alameda and will update this article should we hear back.

What Alameda was likely doing

While Alameda didn’t particularly weigh into the discussion, it did reveal one clue that may explain what was going on.

“People should really look at funding rates for WAVES right now,” tweeted Alameda co-CEO Sam Trabucco.

Funding rates are the amount of money that’s paid out to traders who are taking long or short positions. Essentially, if the majority of participants are going long, then they pay a small amount of their open trades to those who are going short. When this happens, funding rates can climb and provide a potential source of money for those shorting the token. This mechanism is used to keep the price of the perpetual token in line with the spot price.

In this case, the funding rates were negative. So it’s possible that Alameda had taken a long position in order to take advantage of the high negative rates. Yet a common strategy here is to hedge that position by selling the token on the spot market. If Alameda was doing that, it would have enabled them to collect the yield from the funding rates, while minimizing risk.

“So if you long perp, short spot, you collect the yield/funding,” explained Larry Cermak, VP of research at The Block.

A controversial proposal

Regardless of what was going on, a new proposal has been made in the Waves community — supported by Ivanov — that takes aim at Alameda.

The proposal asks for the community to vote on a liquidation rate of 0.1% for all those who borrowed WAVES and USDN — an algorithmic stablecoin known as Neutrino USD that’s backed by the WAVES token — on Vires Finance, the largest lending protocol on the Waves blockchain. This would target Alameda’s funds, according to Ivanov’s investigation.

If it passes, it’s likely that Alameda would have to buy 650,000 WAVES ($30 million) to maintain its position, per estimates by The Block Research.

In Ivanov’s eyes, the proposal is enough to liquidate everyone shorting WAVES. The very small liquidation rate of 0.1% will force short-sellers to unwind their trades. With the proposed threshold, anyone that has taken a loan on Vires will have their positions closed immediately as soon as the price of WAVES moves slightly.

“Let’s protect the waves ecosystem from greed,” Ivanov commented on the proposal, referring to Alameda’s alleged short trade on WAVES.

But soon the proposal became the subject of criticism — mostly from the blockchain’s own users. From the community forum, many pointed out that, if passed, the proposal will be detrimental for users of Vires Finance who will face the brunt of liquidations.

“This is a terrible proposal. Just because we don’t like that a party took a big short position doesn’t mean we should change the protocol to target them back,” said one community member.

“This proposal goes against the ethos of DeFi, is incredibly petty and is detrimental to the long term credible neutrality of Vires,” said another.

Voting on the proposal begins on April 5 and will last five days.

A stablecoin in trouble

To make matters worse, the USDN token has lost its peg to the US dollar. 

USDN started losing its dollar peg around 5.30 PM UTC on April 3, before crashing substantially on April 4, just before noon UTC time. At its lowest point, it fell to just 82 cents.

Part of the reason behind this appears to be a change made two weeks ago that means only traders who have large staked positions of NSBT — Neutrino’s governance token — can make direct swaps between WAVES and USDN. This means that only a few entities are able to swap large amounts of tokens between them directly, without using liquidity on exchanges.

The other key element appears to be uncertainty over the recent proposal that has divided the Waves community. 

When asked why the token has lost its peg on Twitter, Ivanov replied, “Bad [fear, uncertainty and doubt]. someone will make a lot of money off of it. and it’s not us, of course.”

In the meantime, the stablecoin has recovered somewhat — up to $0.87 — but it’s not out of the woods yet.

© 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 legislation aims to push the US Department of State to do more reporting on crypto ⁠— including on its own anti-ransomware whistleblower program. 

On March 31, Congressmen Gregory Meeks (D-NY) and Michael McCaul (R-TX) introduced the Russia Cryptocurrency Transparency Act. The bill calls for the State Department to produce reports on both the effectiveness of current sanctions on Russians using cryptocurrencies, as well as the role of blockchain technology in addressing Ukraine’s humanitarian needs. 

More uniquely, the bill also takes aim at the State Department’s Rewards for Justice program. Launched last July, the program is a tip line for information about attacks on critical infrastructure. It includes anonymous reporting via a Dark Web page and the option to receive payouts in crypto. The RFJ was largely a response to the wave of ransomware attacks early last year.

The Russia Cryptocurrency Transparency Act would require the State Department to report to Congress on every instance in which it was offering a payout in cryptocurrency, justifying”any determination of the Secretary to make rewards under such program in a form that includes cryptocurrency.” The rationale behind this approach is concern that those payouts could also end up in the hands of bad actors, though this is typically how whistleblower programs work in practice.

Neither Meeks’ office nor the RFJ responded immediately to a request for information on the scale of the program’s crypto payouts to the present day.

Additionally, the bill calls for the appointment of a new director of digital currency security in the Office of Economic Sanctions Policy and Implementation within the State Department.

The new legislation follows a great deal of political jockeying over the threat of Russian sanctions evasion, including legislation from Congressman Brad Sherman (D-CA) and Senator Elizabeth Warren (D-MA). 

© 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 staking company Chorus One has launched a $30 million venture fund as it seeks to spend the cash it’s accrued after a booming year for staking businesses.

Chorus One runs across 28 blockchain networks and protocols and, at the height of the market late last year, was looking after $6.5 billion in assets. At the time, the firm was estimating $30 million in yearly revenue. Since then, prices for proof-of-stake tokens have gone down — decreasing its AUM and revenue — but the business has still made bank.

To this end, it has created Chorus Ventures, a $30 million fund focused on decentralized protocols, mostly in areas that the staking company is familiar with. The fund will be investing its own capital rather than seeking external funding. It will be managed by Xavier Meegan, research and ventures lead at Chorus One.

“With the launch of Chorus Ventures, founders now have an alternative way to raise capital, through a company that has a vested interest in the longevity of decentralized networks,” Meegan told the Block.

Prior to launching this new structure, the firm had already made 26 investments into crypto projects. These include Lido, a liquid staking protocol, and Anchor, a yield-generating protocol. It also invested in Quicksilver, a liquid staking protocol focused on the Cosmos ecosystem, which spun out of Chorus One last month.

Chorus Ventures will mostly focus on ecosystems that Chorus One is familiar with. These are the Cosmos and Solana ecosystems, along with blockchains compatible with the Ethereum Virtual Machine, such as Ethereum, Avalanche, BNB Chain and others. 

The fund will focus on key three areas across these blockchains. First is staking, such as liquid staking protocols — like Quicksilver — and protocols that look to support staking in various ways, for example by providing easier access to crypto governance processes.

The second is interoperability, or the ability to connect multiple blockchains for the purpose of sending tokens and information between them. This includes such novel technologies as bridges for direct transfers between blockchains and more complex protocols for making cross-chain swaps. 

The third is middleware. This is the layer of data-based services that help to provide functions for blockchains and applications built on them. These include concepts like RPC (a way to make requests for data), oracles (that provide data to blockchains), indexing services (that gather data and make it accessible) and analytics services (that provide insights).

Other staking firms have also been investing in blockchain protocols, similarly leveraging their insights from working so closely with protocols in the industry. This includes Figment, which launched Figment VC in September 2021. At the time of launch, it said that JPK Capital had led a $17.5 million raise into its venture capital arm for investment purposes.

© 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.

Intel announced the launch of its second-generation bitcoin mining chip, dubbed the Blockscale ASIC.

The tech giant said on Monday that the new chip will deliver more energy efficiency and will start shipping in the third quarter of 2022.

Key features of the new chip include a dedicated secure Hash Algorithm-256 (SHA-256) ASIC processor, up to 580 GH/s hash rate operating, and up to 26 J/TH power efficiency, on-chip temperature and voltage-sensing capabilities, and support for up to 256 integrated circuits per chain.

“The Intel Blockscale ASIC is going to play a major role in helping bitcoin mining companies achieve both sustainability and hash rate scaling objectives in the years ahead,” said Jose Rios, general manager of Blockchain and Business Solutions in the Accelerated Computing Systems and Graphics Group at Intel.

Among the companies that have already signed up to buy the new machine are Argo Blockchain, Block Inc., Hive Blockchain Technologies, and GRIID Infrastructure, according to the announcement.

The company jumped into this space recently, with the launch of its first-generation mining chip, the Bonanza Mine.

“Intel’s decades of R&D in cryptography, hashing techniques and ultra-low voltage circuits make it possible for blockchain applications to scale their computing power without compromising on sustainability,” said Balaji Kanigicherla, Intel vice president and general manager of custom compute in the accelerated computing systems and graphics group.

© 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.