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Quick Take

• As Bitcoin’s China-based hash rate plummets due to shutdown orders from regulators, Texas is emerging as an attractive option for Bitcoin miners.
• Miners argue that mining is just as good for Texas as Texas is for miners since the unique aspects of the industry’s electricity use can strengthen the state’s power grid.
• It’s possible, but it’s unclear how that will work in practice.

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On July 12, a distraught crypto holder posted to Reddit that not only had they kept an especially large amount of money in his MetaMask wallet — some $240,000 — but that they had been phished and given access to a scammer, who was draining his funds. The Redditor invited other users of the popular forum to join them in watching their account get emptied.

The post received arguably justified criticisms of keeping so much money in an in-browser wallet (typically more risky than a hardware wallet kept offline) along with users shaking their heads over the idea of giving out access to these funds to an unusually helpful, supposed technical support assistant. 

But among these responses were some users suggesting a solution, a way that might just stop the bleeding.

It turned out this method would end up saving about half the funds, or some $117,000, and take them out of the reach of the scammer. Here’s how it happened.

Reaching out for help

The crypto holder, known as “007happyguy” on Reddit, was directed to a Whitehat hotline form with his details.

On the other end of the form are a few white hat hackers that say they “are happy to help out distressed individuals.” It’s an ad hoc service, where developers may choose to respond to requests if they’re available.

In this case, Alex Manuskin answered the request, he told The Block. He’s a former blockchain researcher at ZenGo who now does freelance blockchain development work. It was evening his time when he read the message and realised it was urgent because the wallet was still in the process of being drained — plus the amounts were significant.

The first thing Manuskin did was verify that the Redditor owned the wallet in question and wasn’t trying to get access to someone else’s funds. 

At this point he has to get access to the wallet by asking for the private keys. It’s ironic because it’s the one thing any security expert will tell you not to do — but in this case, it’s more of a last resort.

Then he made sure that the scammer couldn’t send any more money out of the wallet. To make Ethereum transactions — even for tokens — you need to have some ETH to spend on transaction fees. So, he made sure that any ETH sent into the wallet was automatically sent out of it.

Using flashbots to rescue the funds

With the threat of further funds being taken diminished, the next goal was to save the remaining funds.

To do this, Manuskin used Flashbots, a service that enables communication between developers and miners. In short, a developer can use Flashbots to send a “parcel” of transactions to a miner to be directly included in a block, rather than broadcasting the transactions to the network and hoping they get picked up.

There are two reasons why this is effective. The main reason in this case is that, without any ETH in the wallet, any transactions made with zero transaction fees wouldn’t get picked up by any miners. What happens with Flashbots is that a complex transaction is made that moves the funds to an alternative wallet and pays the miner using other funds in one go. 

The second reason is that it’s more stealthy. If any transactions are broadcast to the public network, that gives the scammer a chance to frontrun them. (Although in this case there would still need to be some ETH to pay for transaction fees).

Manuskin explained it took around 5-6 hours to write the custom scripts and execute the transactions. He said the timings vary depending on the complexity of the transactions — say if they’re locked in complex protocols — and whether he’s experienced a similar case before.

According to the Reddit post, Manuskin managed to save around $117,000 of the $120,000 in tokens that were left in the wallet after the scammer began draining it. 

Typically, white hat hackers charge about 5-10% of the recovered funds as payment for saving them, depending on the complexity of the work required.

Manuskin said that this specific case was interesting because it was a live battle between him and the scammer. Often the funds can only be recovered because they will get unlocked at a certain date in the future but in this case, they were still at risk of being taken. 

He said it was a bit more stressful as the scammer was still trying to send ETH to the wallet to try to get the tokens out, adding, “It wasn’t a chilled afternoon.”

© 2021 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.

Market data is the lifeblood of Wall Street. 

Any market structure wonk can tell you that the topic of market data is an issue which frequently divides financial services firms (despite how boring that conversation can be). On one side, there are brokers who want to pay less for access to proprietary exchange data. On the other side there are the exchange firms, which have myriad amounts of market data, and as the centers of trading activity, expect to charge money for access.

As such, stock market data is fairly restricted in a way that is markedly different from the crypto market. Crypto exchanges make most data free (whether its volumes, bids, or offers), whereas stock exchanges charge for such data. For the most high-speed access to data, they charge even more. That raises the question: will crypto exchanges follow the path of equity exchanges? That question was on full display this week when an anonymous crypto account took to Twitter to complain that FTX had limited open interest and liquidation data for its futures products.

It turned out not to be true, according to crypto wunderkind Sam Bankman-Fried. And, frankly, there’s a good reason for why it’s not true. And that reason speaks to why market data is still open and free in the Wild West crypto market. 

In crypto, exchanges like FTX, Coinbase and Binance have ample ways to make money outside of data, whereas equities exchanges like Nasdaq and New York Stock Exchange earn a small fraction of a penny matching stock trades. As a result, exchanges like Coinbase make 90%+ of their revenues from trading, while equity exchanges like ICE make more than 50% of their money from data. 

Furthermore, the business of a crypto exchange is far more broad relative to their equity market counterparts. 

SBF put it well in a recent phone conversation:

“We have the GUI, the custody, the clearing, the brand name, and the retail-facing business. So, at the end of the day, our take rate on revenue is a whole lot higher than exchange in equities that is just in the business of matching sellers and buyers. We are making so much more from making data free than we would from increasing revenue from data.”

He added that a 10% increase on data cost would result in a customer loss that would offset such an upcharge. Of course, FTX isn’t the only exchange in crypto that has a similar business model: Coinbase, Gemini, and Kraken look very similar.

So when will exchanges start charging for market data access in crypto? It will likely happen at some point, but before it does, competition needs to compress. Until the crypto market is dominated by fewer exchanges akin to the environment in equities, that won’t happen. 

© 2021 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.

U.S. Treasury Secretary Janet Yellen announced Friday that a powerful group of federal financial regulators will meet next week to discuss stablecoins. 

The President’s Working Group on Financial Markets (PWG) joins the Treasury, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). 

In a statement alongside the announcement, Yellen said: “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.” The meeting will take place Monday.

At the end of last year, the PWG released a report on stablecoins that the Treasury says will be a basis for next week’s meeting. But broadly speaking, stablecoin operators don’t have a clear federal regulator to answer to in the U.S., instead dealing with state-by-state charters and licenses. 

The issue of proper regulation of stablecoins is growing more prominent in the U.S. Just yesterday, Federal Reserve Chairman Jerome Powell told a Senate subcommittee that proper regulation of stablecoins would be a “more direct solution” to U.S. payments than the Fed’s issuance of a central bank digital currency. 

© 2021 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.

Imagine a world with not just a few thousand cryptocurrencies, but billions of them.

That’s Rally CEO Kevin Chou’s vision. The founder of mobile gaming heavyweight Kabam joined The Scoop’s Frank Chaparro to talk about the development of creator coins, which are blockchain-based tokens that are tied to the social capital of a person.

“We thought about… if you have instead of just thousands of tokens in the world, but you have millions of tokens, tens of millions of tokens, a billion tokens at some future point in time, how do you create a world where people can easily exchange that value?”

To be sure, it’s early days for Rally. The firm has onboarded approximately 160 creators, and that number is growing, with a community that spans athletics, art, and music.

Rally is currently working with musicians like Portugal. The Man, as well as streamers, gamers, celebrities, athletes, and others to create their own fungible tokens via their network.

According to Rally, the decentralized $RLY Community has raised $108 million to date for its community treasury. The project is offering a platform for creators to issue their own ‘creator coins’ that allow them to engage directly with fans and offer bespoke incentives — thereby giving them the power to “own their economic destiny,” as Chou puts it.

But the vision is much broader, according to Chou, who said in the interview:

“How do we eventually think about a world where more and more people choose to create their online identity, reputation and financial wherewithal all on a blockchain. And that’s kind of the world that we’re trying to solve here on Rally.”

Chou believes that for many, Rally will be most people’s first foray into cryptocurrency. He said the project aims for Rally to provide that means of value without creators needing to work with other services to create their own tokens.

“We want to, again, make sure that the first creators, the first communities, the first fans, that come on to Rally and get into crypto for the first time, that there’s really solid use cases, that there’s plenty of applications, and integrations into various different tools and social media sites and in other services.”

Chou also highlighted the importance Rally places on compliance with regulatory commissions, saying: “We’ve invested over 10 million dollars on just compliance, civil work and the technology associated with that at Rally.” 

Chou also discusses:

• Rally’s plan to create network rewards for creators
• How creators are earning significant income already with Rally
• How Rally aims to work with regulatory commissions across the globe

© 2021 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.

SB Northstar LP, a business unit of SoftBank, is set to invest in the operator of a yet-to-be-launched crypto exchange as well as the special-purpose acquisition vehicle through which it plans to go public.

Last week, Bullish unveiled its SPAC plans via a public filing, which could see the firm valued at as much as $9 billion. According to a new report from Bloomberg, the public documents highlight how SB Northstar will buy 7.5 million Bullish shares when the SPAC becomes effective. The documents also indicate that SB Northstar is buying 3 million Private Placement Warrants in connection with the SPAC, dubbed Far Peak Acquisition Corp.

As previously reported, the SPAC deal is set to feature $300 million in committed investment from EFM Asset Management as well as BlackRock and Galaxy Digital. Former New York Stock Exchange president Tom Farley will serve as Bullish’s chief executive officer. 

The SoftBank angle of the deal reflects the institutional interest in Bullish, which is aiming to capture design approaches from both the traditional exchange space as well as the world of decentralized finance or DeFi, according to an investor pitch deck released at the time. 

“Bullish is really tipping our hat to the successful use of liquidity pools and automated market makers, and it’s combining them with a CeFi market structure,” Farley said during a recent appearance on The Scoop podcast.

© 2021 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.

Veteran staff at Revolut are being given the chance to sell a portion of their shares in the company as part of the British neobank’s $800 million Series E round, The Block has learned.

Announced July 15, the SoftBank Vision Fund 2 and Tiger Global Management led fundraise gives Revolut a valuation of $33 billion, making it the most valuable British fintech firm in history.

Revolut’s founder and CEO Nikolay Storonsky now boasts a paper fortune of around $7.1 billion, according to reports. But it’s a boon for his 2,200 employees too, who were informed on July 16 that they will be given the chance to sell 20% of their shares in the startup, on certain conditions.

Only staff holding ordinary shares, vested share options, and vested ‘growth shares’ will be eligible to take advantage of the opportunity. They must also have been working at Revolut for at least 18 months and must have started before February 1, 2020. Those eligible to cash in their holdings have until July 20 to do so.

Sales will take place at the price of $609.775 per share, which is roughly five times what they had been worth on paper before the fundraise. The overall value of the company has risen six times since it raised $580 million across two Series D rounds in February and July last year at a valuation of $5.5 billion. The slight difference in uplift is due to the effects of dilution.

A spokesperson for Revolut was contacted for comment and said they had “nothing to add to what you have already.”

Tweaking the share scheme

In February, Revolut rolled out a new ‘growth shares’ scheme which became the de facto bonus structure for staff based in the United Kingdom, Ireland, France, Portugal and Sweden. The scheme was designed to lower the tax liability attached to employee options should they get the chance to sell them.

At the time, The Block reported that staff had expressed concerns over the new structure because of up-front fees of £1.95 and a “hurdle rate” — the price at which the growth shares could be converted into normal shares — of £91 (around $126) per share. That hurdle rate was the same price paid per share by Revolut’s Series D investors.

To profit from their share options, Revolut needed to provide an exit opportunity at a price far enough in excess of $5.5bn that the pay-out would also cover the up-front cost of purchasing the growth shares and Capital Gains Tax.

Whether or not an uplift of 5x fits the bill remains to be seen, but it is surely as lofty a price as shareholders could have hoped for.

Becoming a super app

Launched in 2015 as an app and card business offering travellers cheap foreign exchange rates, Revolut has since ballooned into a so-called ‘super-app’.

“SoftBank and Tiger Global’s investments are an endorsement of our mission to create a global financial super-app that enables customers to manage all their financial needs through a single platform,” said Storonsky in a statement.

The startup now offers its more than 15 million customers current accounts, insurance products, stock investments, and a suite of crypto trading tools.

© 2021 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.

Earlier today, crypto exchange Binance announced that it will no longer offer trading of stock tokens. The move came as several regulators, including those from Germany and Hong Kong, have warned about the exchange’s stock tokens trading offering.

As previously reported, a Binance spokesperson told The Block that “shifting our commercial focus to other product offerings will better serve our users,” and hence, the exchange decided to stop the stock tokens trading service.

Now Michael Kott, founder and CEO of CM-Equity AG, a German financial services firm through which Binance offered the service, also tells The Block that it was simply a business decision.

“Binance did not [have] to cease this, and I can ensure you nobody forced them,” said Kott. “They decided to do so to focus on other crypto-related products, which is their main business.”

Stock tokens, also known as tokenized stocks, are blockchain-based shares of publicly traded companies. Binance launched its stock tokens trading service in April of this year, although it didn’t appear to gain much traction. The total trading volume of Binance’s five stock tokens offering — Apple, Coinbase, Microsoft, MicroStrategy, and Tesla — was only around $1 million at the time of writing.

Other exchanges offering stock tokens

One question that lingers is why have several regulators issued warnings against Binance’s stock token offering and not against FTX and Bittrex Global, which offer similar services also via CM-Equity?

On that question, Kott said he would also like to know the answer. He said CM-Equity is a “fully regulated financial institute” and that the stock tokens offering is also “fully compliant with German and European Financial Market Regulation.”

When asked if Binance’s stock tokens offering was different from FTX and Bittrex Global, Kott said their services are “identical” but are just named differently.

FTX and Bittrex Global are “happy with this product,” said Kott, adding that these exchanges have “different market views and approaches that bring them to different business decisions.”

CM-Equity itself is setting up its own stock tokens trading portal for residents of the European Economic Area and Switzerland. Binance today said its users in these regions could utilize that portal once launched.

“Those users may transition their stock token balances to CM-Equity AG once its new portal is established,” said Binance. “The portal is scheduled to be open approximately two-to-four weeks before 2021-10-15 (UTC), and additional KYC measures will be requested by CM-Equity AG to complete the transition.”

Binance has been at the center of global regulatory attention in recent weeks. Government agencies in the U.S, the U.K., Italy, Japan, Thailand, Poland, and the Cayman Islands, have all either issued warnings or taken action against the exchange recently.

For more breaking stories like this, make sure to subscribe to The Block on Telegram.

© 2021 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 video clip that went viral on Twitter on Friday initially led many to wonder who would destroy such a significant number of bitcoin mining equipment and where. Turns out it was the Malaysia police.

The video that shows a steamroller crushing hundreds of bitcoin ASIC miners on the ground first started to circulate among the Chinese crypto community on WeChat on Friday morning local time. Some initially speculated that it happened in China or Latin America as the background of the video made it difficulty to tell its whereabouts exactly.

But per a report from Malaysia media outlet The Star, it was the police in the city of Miri in Malaysia’s Sarawak state that was deposing a total of 1,069 bitcoin miners seized from a recent crackdown on an electricity theft.

According to the report, the Miri police and the Sarawak Energy Berhad carried out a joint operation between February and April, arresting eight individuals for allegedly stealing electricity to mine bitcoin. Bitcoin mining equipment that was worth about $1.25 million was confiscated afterwards.  

“All seizures made in the cases that had been settled in court were disposed of at the Miri district police headquarters today,” the report said.

Another local media outlet included another video clip with a different angle that showed the same operation by the local police crushing the bitcoin miners.

Based on the latest bitcoin mining map compiled by the Cambridge Center for Alternative Finance, Malaysia accounted for about four percent of bitcoin’s total network hash rate as of April this year.

But there have been multiple reports over the years that operators in Malaysia have been stealing electricity to secretly mine bitcoin.

Just in March, the police in Malaysia’s Melaka state were hunting a bitcoin miner who allegedly caused about 9 million ringgit (around $2.2 million) of losses to a local utility company.

© 2021 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 America has entered the bitcoin futures trading game.

The bank is clearing cash-settled bitcoin futures, a type of contract that settles in US dollars rather than bitcoin itself, according to two sources. CoinDesk first reported the development Friday morning.

In a sense, the news isn’t surprising; clearing cash-settled futures on an exchange like CME is similar to the trading of any other cash-settled product. 

Still, the news illustrates that Wall Street is warming up to the bitcoin market. Goldman Sachs relaunched its own cryptocurrency trading operation, offering clients exposure to bitcoin futures through trading partners like Galaxy Digital, as previously reported by CNBC. Goldman and Morgan Stanley have also announced initiatives that would offer bitcoin-tied products to some of their private wealth clients. 

As for BofA, support of bitcoin futures would not be its first foray into the market. As previously reported by The Block, the bank launched a new research team dedicated to covering the crypto market. The new unit is being led by Alkesh Shah, who joined the bank in 2013, according to a memo seen by Bloomberg. 

The bitcoin futures market has cooled down in recent months alongside the price of cryptocurrencies. As per The Block’s Data Dashboard, aggregate open interest across bitcoin futures markets stands at $11.8 billion, down from a high of around $27.6 billion in April. 

© 2021 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.