Day: November 10, 2022

Was the Secret Transfer of $4 Billion to Alameda, FTX’s Undoing?

by Blockchain News

The liquidity crunch facing FTX might have emanated from Sam Bankman-Fried, the crypto exchange’s CEO, secretly transferring at least $4 billion to boost Alameda, with part of the funds being customer deposits, according to Reuters.

Per the report:

“Seeking to prop up Alameda, which held almost $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc. Bankman-Fried did not tell other FTX executives about the move to prop up Alameda.”

Lucas Nuzzi, the head of research & development at CoinMetrics, shared similar sentiments and stated:

“I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them. 40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain. A rabbit hole appeared.”

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Source:LucasNuzzi

 

FTX’s downfall was also prompted by Bankman-Fried’s decision to save struggling crypto firms as the bear market continued to bite. The report noted:

“Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing.”

Part of the losses that Alameda Research endured entailed a $500 million loan agreement with collapsed crypto lender Voyager Digital. 

 

FTX’s future is in jeopardy after Binance halted acquisition plans, citing misappropriation of customer funds, Blockchain.News reported.

 

Binance disclosed that this decision was reached based on corporate due diligence and reports of alleged U.S. agency investigations and mishandled client funds. 

 

Based on a shortfall of up to $8 billion, Bankman-Fried acknowledged that FTX was in need of $4 billion to remain solvent if it was to avoid the bankruptcy route. 

 

The rain started beating FTX after experiencing a “giant withdrawal surge” of $6 billion in cryptocurrencies in just 72 hours. The crypto exchange was accustomed to daily withdrawals that amounted to tens of millions of dollars. 

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Binance Publishes Details of Holdings in its Hot Wallet

by Blockchain News

Binance, the world’s largest cryptocurrency trading platform by transaction volume has published the details of the funds in its hot wallet as it seeks to truly lead by example.

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Taking to its official Twitter handle to announce the move, the firm shared a snapshot of what it currently holds as of November 10, 12 am UTC.

The total number of its Bitcoin (BTC) holdings came in at 475,000, worth about $8.42 billion based on the current price of Bitcoin pegged at $17,744.28 per data from CoinMarketCap.

The exchange said it has a total of 4.8 million ETH, 17.6 billion USDT, 21.7 billion BUSD, 601 million USDC, and 58 million BNB. If aggregated together, the funds are worth more than $72 billion judging by the prices of all assets at the time of writing.

The figures posted send confidence into the Binance community with many attesting to the strong liquidity and solvency of the trading platform. 

With the whole fiasco surrounding the rival trading firm, FTX, many exchanges have been placed on the edge as customers demand Proof-of-Reserve. Now that Binance has taken the lead, more exchanges may also follow suit as this seems to be the only thing that can pacify investors at this time.

The crypto ecosystem has passed through tumultuous seasons this year with the collapse of Terra (LUNA) initially sending top crypto lenders like Celsius Network and Voyager Digital to file for bankruptcy. The rout in the industry was very encompassing, it cut across various countries and sectors of the industry.

Billions of investor funds are still being locked up in bankruptcy proceedings to date and many are weary of events that will likely stir a repeat of such an occurrence with FTX. For now, investors are likely to stick with a trading platform with proven robust reserves until the coast is truly clear.

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SEC Chair on FTX Collapse: Investors Need Better Protection

by Blockchain News

The collapse of the beleaguered crypto trading platform, FTX Derivatives Exchange has pushed top government officials, including Gary Gensler, the Chairman of the Securities and Exchange Commission (SEC) to weigh in on the digital currency ecosystem.

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Speaking in an interview with CNBC, Gensler said he has reiterated time and again that investors need adequate protection. He bemoaned the fact that despite the clear regulations that is existent in the industry, most players are still very much non-compliant to the rules.

“I think that investors need better protection in this space. It’s a field that’s significantly non-compliant, but it’s got regulation,” he said.

For FTX, the SEC boss said the fact that the company has a huge influence in the space in which it has a number of top-profile celebrities including Kevin O’Leary, Tom Brady, and Steph Curry as its ambassadors gives it a massive sway over investors. 

In his view, investors and the “public can fall prey to celebrity promotions,” a trait that showed up as very prominent over the past year. 

Gensler’s stance that the industry has the laws it needs to guide it is somewhat disputed by top figures in the digital currency ecosystem. In the wake of the FTX implosion, Senator Elizabeth Warren shared a tweet noting she will begin pressing the SEC to intensify its scrutiny of the ecosystem. 

In response, Coinbase CEO, Brian Armstrong said America does not have the right guiding laws for players in the industry, a move that has pushed more than 95% of trading activities offshore. Drawing comparisons with Singapore which has defined models for how crypto players should operate, Ripple CEO, Brad Garlinghouse supported Armstrong’s position underscoring the general consensus about the lack of clarity that exists in the industry.

With the fall of FTX, the SEC, Department of Justice and the Commodity Futures Trading Commission (CFTC) are all now reportedly investigating trading platforms in the US, beginning with FTX US. This may likely be the norm moving forward.

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Hodlnaut Held Up to $13M on FTX Prior to Withdrawal Halt

by Blockchain News

The collapse of the FTX Derivatives Exchange has stirred a lot of awakening for several digital currency trading platforms and investors.

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One of the entities that may be significantly impacted by this fall from grace is Hodlnaut, the Singapore-based crypto exchange that went bankrupt earlier in the summer.

Drawing on its previous court filings, there is every likelihood that Hodlnaut has as much as $13 million in deposits kept on FTX which it might not have withdrawn at the time the exchange halted withdrawals this week. 

With the supposed insolvency of the trading platform, some investors had begun counting their losses with an expectation that the billions of dollars that will likely be tied down in bankruptcy proceedings should the firm file for that protection will take a very long time to access.

This disposition is for exchanges and investors who are still healthy and does not reflect the position that will best be soothing for other embattled firms like Hodlnaut.

Hodlnaut suspended withdrawals back in August, citing the tough market conditions at the time. The withdrawal halt followed similar moves from other more capitalized crypto lending firms including Celsius Network, Voyager Digital, and Zipmex amongst others. About a week after it halted the withdrawals, the platform filed for bankruptcy protection with the Singapore High Court with investor’s funds still locked up to date.

Besides FTX, Holdnaut notably has locked funds on other trading platforms including Deribit, Binance, OKX, and Tokenize. With more than 70% of the $18.3 million held on these trading platforms tagged with FTX, the firm may find its own in-house challenges to be more compounded if it remains unable to withdraw these funds with the current state of affairs.

With the bailout from Binance out of the window, other stakeholders including Tron Founder Justin Sun have pledged support to FTX in a bid to help restore normalcy.

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Crypto Firm Bakkt Reports $1.5B in Impairment Losses in Q3

by Blockchain News

Georgia-based crypto trading company Bakkt Inc has released the results of its third quarter ending September 30, showing a net revenue of $12.9 million increase of 41% year-over-year.

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The trading platform said its impressive net revenue was born out of an improvement in travel loyalty redemptions.

Though the immediate impacts of the crypto winter had abated in Q3, most crypto firms still faced notable headwinds during that period. 

For Bakkt, it said its operating expenses came in at $1.6, a figure that soared year over year. According to the New York Stock Exchange-listed firm, the bogus expense was fueled by the $1.5 billion impairment it recorded “due to the elongated timing for expected cryptoasset product activations and the decline in our market capitalization.”

Overall, Bakkt said its business saw significant growth with a total transaction account of 678,000, an increase of 21% year-over-year. 

“Our focus on execution is paying off and we are proud to have initial activations with our crypto capabilities. We are working closely with our partners to bring even more of them to market in the near term,” said Bakkt CEO and President Gavin Michael said in a statement.

Bakkt made the news recently when it unveiled it has signed an agreement to acquire Apex Crypto LLC, a subsidiary of Apex FinTech Solutions Inc. The transaction was valued at $200 million and is billed to steer the company into the digital currency payment ecosystem, and constituted a major highlight of the firm’s business for the third quarter.

“We are thrilled about the signing of the acquisition of Apex Crypto, which we expect will accelerate our growth plans post-close as it will significantly expand our client verticals and cryptocurrency product offering. We believe that Apex Crypto will be highly complementary with our platform and the acquisition will ultimately help us deliver long-term sustainable value for our partners, customers, and shareholders,” Gavin said.

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Crypto Prime Broker Hidden Road Partners Urges Clients to Liquidate FTX Positions

by Blockchain News

Cryptocurrency prime broker Hidden Road Partners is expected to complete the liquidation of its FTX.com holdings tonight, according to Bloomberg.

Hidden Road Partners, founded by Marc Asch in 2018, is a prime brokerage firm focused on digital assets and foreign exchange trading. The company allows banks or other institutions that cannot directly hold digital assets to make profits and losses in US dollars by using US dollars as collateral through a “three-way” mechanism established with custodians.

Hidden Road Partners is urging users currently on the virtual currency exchange FTX.com to liquidate their current positions and exchange all balances for fiat U.S. dollars due to the latest liquidity crisis on the FTX exchange.

The company claims to have decided to liquidate FTX.com’s holdings due to the “exchange’s default”. Earlier in August, digital asset and foreign exchange brokerage company Hidden Road Partners completed a $50 million financing, with participation from Citadel Securities, FTX Ventures, Coinbase Ventures, and others.

Just a few days ago, Binance founder and CEO Changpeng Zhao announced previously that the exchange intended to liquidate all its exposure to FTX of about $530 million in FTT tokens as part of Binance’s exit from FTX’s stake last year.

The decisions triggered a FUD sentiment in the market, causing the collapse of FTX.

Reportedly, FTX CEO Sam Bankman-Fried has informed investors that the crypto exchange will need to file for bankruptcy if it cannot secure a cash infusion. Bloomberg obtained the news from a person with direct knowledge of the matter.

The liquidity crisis caused by the highly leveraged use of funds by the cryptocurrency exchange FTX.com has caused the entire industry to think about a series of issues, such as fund security, custody, and transparency.

Bybit co-founder and CEO Ben Zhou said that “The entire sector has a duty and obligation to do better by our customers,”

Many other crypto exchanges, including Coinbase, Bybit, have stated that they will not participate in such high-risk activities and guarantee that all customers’ assets are stored in one-to-one liquidity custody, and users can withdraw assets at any time.

Crypto.com CEO Kris Marszalek also stated that it should be necessary for crypto platforms to share proof of reserves publicly, and Crypto.com will publish our audited proof of reserves.

“This is a critical moment for the entire industry. Transparency is more important than ever, and safety and security of users and funds remains the priority. It requires full and collective commitment,” Marszalek said.

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Proof-of-Reserves Becomes a Burning Issue amid FTX Crisis

by Blockchain News

The collapse of FTX, one of the leading crypto exchanges, sent shockwaves in the digital asset space.

With the liquidity issue being a primary contributor to the FTX crisis, the proof-of-reserves concept has engulfed the crypto sector, with more exchanges gearing towards showing more transparency. Crypto exchange Gate.io explained:

“What is Proof-of-Reserves? An audit by a 3rd party ensuring that a custodian holds the assets it claims to. A snapshot of all balances held is taken & aggregated into a Merkle tree, a privacy-friendly data structure encapsulating balances.”

As a data structure, a Merkle tree or Hash tree prompts data verification and synchronization. Therefore, it utilizes hash functions for data integrity and transparency purposes. 

Binance CEO Changpeng Zhao (CZ) prompted the proof-of-reserves trend after pointing out that it would propel the crypto exchange’s transparency about its digital asset holdings. He stated:

“All crypto exchanges should do merkle-tree proof-of-reserves. Banks run on fractional reserves. Crypto exchanges should not. Binance will start to do proof-of-reserves soon. Full transparency.”

Market analyst under the pseudonym Tajo Crypto said:

“After the incident with FTX, CZ Binance introduced proof-of-reserves to help users know exactly how exchanges are handling their funds and prevent bank runs. Many exchanges quickly embraced the proof-of-reserves concept and promised to be more transparent.”

Binance published its latest proof of assets, which includes over 125,000 Bitcoins and 9,900 Ethereum and 1,250,000,115 Tether tokens. Meanwhile, Crypot.com said its company will be publishing its audited proof of reserves, CEO Kris Marszalek said in a tweet, noting that transparency is more important than ever in this critical moment for the industry, according to Bloomberg.

The rain started beating FTX based on its lack of crypto reserve transparency. Therefore, the proof-of-reserves seeks to inform the general public, especially depositors, if deposits match user balances. 

Lucas Nuzzi, the head of research & development and CoinMetrics, acknowledged that FTX’s bailout of its research arm, Alameda, has come back to haunt the exchange. He said:

“I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them. 40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain. A rabbit hole appeared.”

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Source: LucasNuzzi

On his part, market insight provider Nic Carter believes proof of reserves coupled with proof of liability equates to proof of solvency. He pointed out:

“Proof of Reserves is the idea that custodial businesses holding cryptocurrency should create public facing attestations as to their reserves, matched up with a proof of user balances (liabilities). The equation is simple (in theory): Proof of Reserves + Proof of Liability = Proof of Solvency.”

Meanwhile, Binance has revealed that it will not proceed with its acquisition of FTX, Blockchain.News reported. 

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Sequoia Capital’s $213.5m Investments in FTX Marks Down to $0

by Blockchain News

The liquidity crisis in the cryptocurrency trading platform FTX.com continues to escalate in the crypto market. On November 10, Sequoia Capital shared a note on FTX sent to Global Growth Fund III on Twitter.

“Based on our current understanding, we are marking our investment down to $0,” the Silicon Valley-based firm said Wednesday.

The statement reads the liquidity crunch created solvency risks for FTX. The full nature and extent of this risk are not yet known. 

Sequoia said the company is still trying to reassure investors that it has limited exposure to FTX.

Sequoia Capital emphasized that even among the fund with the largest exposure to FTX named GGFIII, which has investments in FTX.com and FTX.US, is not in the fund’s top ten positions, and the $150 million cost basis only accounts for the fund has less than 3% of committed capital. Losses of $150 million were offset by realized and unrealized gains of $7.5 billion, so the fund held up well.

The SCGE Fund invested a total of $63.5 million in FTX.com and FTX.US, representing less than 1% of the SCGE Fund’s September 30, 2022 portfolio at fair value.

Sequoia told investors that it spent about $213.5 million on FTX’s international and U.S. operations last year.

“We’re in a risk-taking business,” Sequoia Capital said. “Some investments will surprise you, and some will disappoint.”

In addition, it stated that when choosing to invest in FTX, it conducted strict due diligence on it. In 2021, when it invested, FTX generated about $1 billion in revenue and more than $250 million in operating income.

However, the rapid change in the cryptocurrency market was unexpected for the company, but fortunately, FTX is not the fund’s top ten holdings.

The company said it will communicate with investors in a timely manner if there is any further news.

The reason why Sequoia Capital directly chose to write down can partly explain that the company has lost confidence in FTX and believes that there is no other clear way to recover its investment in FTX.

Other companies, including BlackRock, Tiger Global, SoftBank Group, and the Ontario Teachers’ Pension Fund, which ranks among the top five pension funds in Canada, are all on the list of FTX’s customers and may also suffer losses this time.

According to Bloomberg, FTX may face a funding gap of up to $8 billion, and without a cash injection, the company will need to file for bankruptcy.

Binance has announced on Twitter that it will “not pursue the potential acquisition of FTX”, among other reasons, due to FTX’s mishandling of customer funds.

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The First Crypto Bank in Puerto Rico Rolls Out Digital-Asset Custody Service

by Blockchain News

FV (Fintech Ventures) Bank, a global financial entity registered in the U.S. territory of Puerto Rico, has launched a digital-asset custody service for seamless safeguarding and interoperability of crypto and fiat, according to Bloomberg. 

The crypto custody feature will first support Bitcoin (BTC). Later on, Ethereum (ETH), Tether (USDT), and USD Coin (USDC) will be incorporated in coming weeks, with plans to add more cryptocurrencies in the future. 

FV Bank finds itself in a rare playing field in the growing banking-meets-crypto industry, according to Steven Beattie.

The financial crime consulting and crypto risk leader at EY added:

“First movers are incredibly valuable. As a first mover you have a chance to change your competitive position across the industry. But being first creates some risk.”

Even though various cryptocurrency exchanges enable users to swap fiat for crypto, only a few US-regulated banks have this ability. 

Miles Paschini, FV Bank’s CEO, pointed out:

“Our primary goal since founding FV Bank has been to help drive blockchain technology innovation in financial services by offering institutional clients a technology solution seamlessly integrated into a regulated bank and trust model that offers traditional banking along with digital assets custody and settlement.”

FV Bank sees the digital-asset custody service as a stepping stone toward bridging the gap between the traditional financial sector and the crypto economy. Paschini added:

“We have also advanced best in class AML procedures for digital assets by combining traditional bank compliance functions with specialized blockchain analytics, to ensure we are positioned as a leader and role model for how banks can participate in the convergence of traditional financial services and the digital asset economy.”

Meanwhile, France-based BNP Paribas recently entered the crypto custody bandwagon, Blockchain.News reported.

As the second largest global bank in Europe, BNP Paribas partnered with Swiss-based crypto infrastructure firm Metaco to enable the offering of digital assets custody services to its customers. 

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Lionel Messi Becomes Sorare’s Brand Ambassador and Investor

by Blockchain News

Lionel Messi, a football star who has bagged seven Ballon d’Or Awards, has joined hands with Sorare to be its brand ambassador and investor.

Sorare is an Ethereum-based fantasy soccer game platform that leverages non-fungible tokens (NFTs). Therefore, Messi will be instrumental in how fans connect with players and clubs.

Nicolas Julia, the co-founder and CEO of Sorare, pointed out:

“We believe Messi will help us set new standards in how we do this, and we look forward to sharing what new content and fan experiences we’ve been collaborating on soon.”

He added that the partnership was a “huge milestone” for the platform. 

Messi, who currently plays for the French club Paris Saint-Germain (PSG), said:

“Fans have always looked for ways to express their passion and get closer to the players and teams that they love and Sorare’s combination of a fantasy game with digital collectibles gives fans new ways to do that, wherever they are in the world.” 

Sorare users usually have the chance to create their preferred teams and trade NFT-based football player cards.

Comprising at least 2 million users spread across 185 countries, Sorare was previously valued at $4.3 billion. The Paris-based startup has also partnered with more than 300 sports teams and major leagues, such as Germany’s Bundesliga and Spain’s La Liga. 

Sorare has expanded its scope beyond football to include other sports like baseball and basketball.

For instance, the National Basketball Association (NBA) recently inked a deal with the platform to enhance the fan experience and render more interaction, Blockchain.News reported.

The NBA acknowledged that the fantasy basketball game would allow fans to develop a lineup of NFT-powered digital collectables based on their favourite teams and players.

Sorare seeks to boost digital assets and blockchain adoption in daily life by creating unique digital tokens on its fantasy platform. 

“There has been a lot of hype around different football projects using non-fungible technology up to now, but the ones that stick around will be those that offer real underlying utility and see non-fungible technology as the means to achieving their goals, not the ends,” Julia stated.

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