OpenSea, once the leading marketplace for non-fungible tokens, was built on a promise of perpetual royalties for digital artists. Then came upstart Blur, whose no-fee, trader-friendly platform put the focus on pricing and costs.



It only took a few months to kill the art world’s <a href="https://www.forbes.com/sites/digital-assets/2023/03/17/what-blurs-success-reveals-about-nft-marketplaces/?sh=19e61c2a189f">utopian dream</a> of long-lasting income streams for content creators.



As of September 1, OpenSea, once the leading marketplace for art linked to non fungible tokens, rescinded its policy of mandatory royalty payments to NFT creators. The decision came after it lost its dominance to no-fee competitor Blur, which only appeared on the scene in October but then quickly gobbled up market share by not charging platform processing fees and became the top NFT trading site in February. Overall NFT trading volume has plummeted from about $5.36 billion in January 2022, according to The Block, to $410 million in August. OpenSea’s share of the struggling NFT market has plummeted to under 30%.



Besides the lack of platform fees, Blur does not force sellers to abide by royalty agreements, which creators who launch their works on OpenSea and a few smaller marketplaces can require on transactions in their artworks after the initial sale. OpenSea, which did police such arrangements, said it would no longer do so after August 31, and it seems unlikely that many buyers will offer the payments.



Without the guarantee of a long-term royalty stream, the appeal of creating works linked to NFTs lessens, and prices for the kind of computer-generated art often linked to the tokens are plunging anyway. So why should artists bother with NFTs?



“Making art is an act of risk-taking,” says Amy Whitaker, associate professor of art business at New York University. “It makes sense, therefore, for artists to share in the upside that they helped to create.” She termed OpenSea’s decision to abandon royalties “unfortunate.”



Digital works encoded onto blockchains rose in popularity in 2021 after the artist Beeple sold a collection of images previously published on his Instagram page for $69 million. Seeing the big bucks to be made in a seemingly simple process–just upload a digital file to an NFT marketplace, which would encode it, for a fee, onto a blockchain–hundreds, if not thousands of artists joined in. NFT aficionados, including artists and collectors, claimed that blockchain-linked art would democratize access to a murky and difficult-to-break-in market, making the opaque system of well-connected galleries and deep-pocketed buyers obsolete. The decentralized system for royalty payments, they contended, would also ensure that artists would directly participate in the appreciation of their works, typically earning a 10% cut on each subsequent sale.



Each marketplace maintained its own policy for awarding royalties to artists. Beeple for example, famously would sell his “drops” for $1 each, but as they were bid up and resold on NFT marketplace Nifty Gateway for hundreds of thousands of dollars, he earned tens of thousands in royalties on each transaction.



In its brief life, NFT-linked art has largely been digital, often in series of similar images with various unique features that make some more collectible than others. But anything can be linked to a token–traditional art, real estate, even musical instruments–and then tracked on its associated blockchain. So, the technology could speed transactions and cut out middlemen in many industries.



<abbr>T</abbr>he fight for royalty payments has largely played out in the court of NFT marketplaces, websites that allow creators and sellers to list their pieces in primary and secondary transactions. In order to better compete with Blur, OpenSea launched what it called its operator filter, which allowed creators of NFTs to prohibit their tokens from being sold in marketplaces that did not enforce royalties. In other words, the filter blocked OpenSea’s competitors and required collections to trade either on its own marketplace or others that did enforce royalty payments, keeping them away from Blur.



Market forces did not cooperate with OpenSea’s strategy. Free trades and optional royalty payment policies quickly drew sellers, which in turn attracted buyers. Since prices and volume were controlled by traders, seeking quick, if marginal, returns, voluntarily paying royalties to artists were easily dismissed by them.



OpenSea’s trading volume plummeted to 27% in August as Blur’s skyrocketed from a mere 5% to 60% in the same time frame, according to data from&nbsp;<a href="https://www.theblock.co/data/nft-non-fungible-tokens/marketplaces" target="_blank" rel="noreferrer noopener">The Block</a>. Even OpenSea Pro, OpenSea’s no-fee aggregator and direct competitor to Blur which launched in April, has been unable to take market share from Blur, accounting for only 33% of trading volume on NFT aggregators in August (63% of trades happened on Blur), according to data from<a href="https://dune.com/hildobby/nft-aggregators" target="_blank" rel="noreferrer noopener">&nbsp;Dune Analytics</a>.



But the playing field is not level for OpenSea. With no marketplace fee, Blur is living mostly on its $11 million in&nbsp;<a href="https://www.forbes.com/sites/digital-assets/2023/04/13/forget-art-lets-trade-how-a-10-person-startup-came-to-dominate-nft-markets/?sh=227ffacc2680">venture capital funding</a>&nbsp;and a&nbsp;<a href="https://docs.blur.foundation/tokenomics" target="_blank" rel="noreferrer noopener">hefty</a>&nbsp;supply of blur tokens, reward tokens given out to its founding team and traders as rewards for using the platform. While Blur has attempted to grow its customer base with the launch of its lending products (Blend) and more uses for its token, how long its dominance will last will depend on its reliance on its token model, which could make it susceptible to regulatory action.



Ultimately, OpenSea has not only lost market share to Blur, but it is taking a smaller piece of a smaller pie. After peaking at $16 billion in January 2022, NFT trading has plummeted, with only $559 million worth exchanged in August in 3.2 million transactions, a more-than-<a href="https://www.forbes.com/sites/digital-assets/2023/08/03/stan-lee-becomes-nft-superhero-illustrating-a-downward-shift-in-prices/?sh=6de9fb6d5ae5">60% volume decrease</a>&nbsp;from last year, according to industry research firm&nbsp;<a href="https://dappradar.com/blog/blockchain-industry-regains-traction-as-2-million-unique-active-wallets-interact-daily/#Chapter-4" target="_blank" rel="noreferrer noopener">DappRadar</a>. Even then, only 15% of unique active wallets contributed to August’s NFT transactions. In July, only 4% of wallets traded the NFTs.



Few transactions and even fewer users (measured by the number of unique wallets) points to a new normal in NFT trading which is bad news for digital artists: traders rule the market, and most refuse to pay royalties.



Blur’s predecessors, aggregators like X2Y2 and LooksRare which listed NFTs available in various marketplaces, set the standard for royalty-free marketplaces geared toward traders by offering quick no-fee transactions. Others, like Magic Eden, the largest marketplace for NFTs on the Solana blockchain, and Ethereum-based OpenSea, had to respond to draw customers back to their platforms, lowering costs one way or another. Magic Eden took the first step, moving to a royalty-optional model in&nbsp;<a href="https://twitter.com/MagicEden/status/1581101016686399491?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1581101016686399491%7Ctwgr%5E9d190b061a3b95519526e7d4bab1ea7a5ea8bfbb%7Ctwcon%5Es1_c10&amp;ref_url=https%3A%2F%2Fwww.coindesk.com%2Fbusiness%2F2022%2F10%2F15%2Fmagic-eden-moves-to-optional-royalty-model%2F" target="_blank" rel="noreferrer noopener">October</a>&nbsp;as trading declined, preceding OpenSea by two weeks.



<abbr>T</abbr>he royalty policy changes at OpenSea and other marketplaces should send a loud wake up call to Bored Ape Yacht Club maker Yuga Labs. Since it debuted in April 2021, Yuga has received $58 million in royalties from the resales of its Bored Ape collection. Its Mutant Ape Yacht Club and “Otherdeed” collection brought in nearly $100 million more. Chiru Labs, which designed the anime-inspired Azuki collection, and&nbsp;<a href="https://www.forbes.com/sites/mariagraciasantillanalinares/2022/09/13/reddits-ohanian-leads-54-million-doodles-capital-raise/?sh=84266a63bf38">Doodles</a>, purveyor of pastel-forward illustrations are also likely to take big revenue hits.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h2 class="wp-block-heading" id="h-top-10-royalty-generating-nft-collections">TOP 10 ROYALTY GENERATING NFT COLLECTIONS</h2>



<h4 class="wp-block-heading" id="h-through-august-2023-profile-picture-collections-have-received-the-most-in-total-royalties-since-launch-garnering-millions-in-fees-from-secondary-trading-but-when-it-comes-to-effective-royalty-rates-metaverse-and-gaming-nfts-with-rates-of-8-to-9-are-the-winners">Through August 2023, profile picture collections have received the most in total royalties since launch, garnering millions in fees from secondary trading. But when it comes to effective royalty rates, metaverse and gaming NFTs, with rates of 8% to 9%, are the winners.</h4>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Even prior to OpenSea scrapping royalty payments, 10% royalties were more of a goal than a reality. According to Nansen, the average royalty for the highest earning collections was between 2% and 4%. Top-performing gaming collectibles were earning 5% to 10%.



Though they stand to have the most dollars to lose, some big creators are insulated by the brand recognition they’ve garnered, including shows at traditional&nbsp;<a href="https://www.centrepompidou.fr/en/magazine/article/the-centre-pompidou-in-the-age-of-nfts" target="_blank" rel="noreferrer noopener">museums</a>, and can still claim the big bucks on primary sales. Chiru Labs, for example, raised $38 million ahead of its much-anticipated “Elementals,” although investors ultimately thought that collection of characters with&nbsp;<a href="https://twitter.com/wizardofsoho/status/1673772462289350657?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1673772462289350657%7Ctwgr%5E1f3046daac6098742355f02bd7c2633d1e660522%7Ctwcon%5Es1_c10&amp;ref_url=https%3A%2F%2Fdecrypt.co%2F146464%2Fazuki-nft-prices-plummet-collectors-blast-identical-elementals-art" target="_blank" rel="noreferrer noopener">almost identical designs</a>&nbsp;was a flop.



The most dire consequences of the loss of royalties are likely to fall on the smaller creators whose monthly payments have been in the hundreds or low thousands of dollars but who have included the income in their financial planning, according to Calderon.



At the $6.7-million collection Rektguy, the loss of royalties is having tangible results, says co-founder Ovie Faruq. “We&#8217;ve used royalties to pay a moderator, to put-on real-life events, to build different competitions and build our website and community,” he says. “So, when you strip that out, it changes the business model.”



Combined with the evaporating royalties, NFT participants face new U.S. regulatory issues. The Securities and Exchange Commission last month required Los Angeles-based&nbsp;<a href="https://www.forbes.com/sites/digital-assets/2023/08/31/sec-opens-a-new-can-of-worms-with-nft-enforcement-action/?sh=4aba9c3921ab">Impact Theory</a>, a digital media studio which raised $30 million from its NFT sales since 2021, to revise the smart contract underlying its Founders Keys NFTs to&nbsp;<a href="https://www.sec.gov/files/litigation/admin/2023/33-11226.pdf" target="_blank" rel="noreferrer noopener">eliminate</a>&nbsp;any royalty payment the company may receive from future secondary market transactions. The SEC alleges the company sold unregistered crypto securities through its sale. Because Impact collects and profits from the royalties (set at 10%), rather than the digital artist, the SEC contends, its NFTs are securities. This week, the SEC also fined the creators of the Stoner Cats collection&nbsp;<a href="https://www.sec.gov/news/press-release/2023-178" target="_blank" rel="noreferrer noopener">$1 million</a>&nbsp;over the sale of unregistered securities.



Impact Theory’s NFTs offered a number of exclusive opportunities to holders, including discounts and early access to videos and gaming content. To settle charges that it was selling unregistered securities–the first SEC enforcement action against an NFT issuer–Impact Theory also agreed to destroy its remaining supply of the tokens and pay a $6 million fine.



If the SEC is looking at royalty payments as a potential criterion for treating the tokens like securities, NFT studios, collectors and even the marketplaces they’re traded on could be susceptible to the same kinds of enforcement actions the agency has been taking against cryptocurrency companies. The way the Impact Theory NFTs were structured may have made them especially susceptible.



“There&#8217;s a pretty good argument for the artists receiving royalties downstream, based on certain case law,” says James Walker, co-lead of Perkins and Coie’s fintech enforcement and compliance team referring to the way the entertainment industry compensates musicians, actors and screenwriters, for example. “But there’s a stronger argument [that NFTs are securities] when you have a company [like Impact Theory] that isn’t involved in the creation that is getting royalties downstream from certain NFTs issued.&#8221;

Collage of woman falling through the metaverse

Requiem For Royalties: NFT Exchanges Abandon Recurring Compensation For Artists

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



The price of Bitcoin fell below $26,000 Thursday—its lowest level since June—amid a broader crypto market slump after the&nbsp;Wall Street Journal&nbsp;<a href="https://www.wsj.com/tech/behind-the-curtain-of-elon-musks-secretive-spacex-revenue-growth-and-rising-costs-2c828e2b?mod=hp_lead_pos5" target="_blank" rel="noreferrer noopener">reported</a>&nbsp;that SpaceX has taken a significant write-down on its Bitcoin holdings and sold the cryptocurrency.



<h2 class="wp-block-heading" id="h-key-facts">KEY FACTS</h2>



The price of the world’s most valuable cryptocurrency stood at $26,400 early on Friday, down nearly 8% in the previous 24 hours and 10% compared to last week.



Earlier on Thursday evening, the price of Bitcoin had dropped even lower, to around $25,400 before a slight recovery.



Ether, the world’s second-largest cryptocurrency, also took a similar hit and fell to $1,680—down 6.6% in the previous 24 hours.



Other major tokens like Binance’s BNB, Cardano and Solana are also down more than 6%



<h2 class="wp-block-heading" id="h-big-number">BIG NUMBER</h2>



16%. That’s how much the price of Ripple’s XRP token has fallen in the past 24 hours, significantly worse than all other major cryptocurrencies. XRP’s steeper fall is a result of a federal judge’s&nbsp;<a href="https://www.wsj.com/livecoverage/stock-market-today-dow-jones-08-17-2023/card/judge-in-sec-ripple-case-opens-path-to-partial-appeal-after-july-ruling-Qj9YAsJsOP72ufpmQfCx" target="_blank" rel="noreferrer noopener">decision</a>&nbsp;on Thursday to allow the SEC to partially appeal a&nbsp;<a href="https://www.bloomberg.com/news/newsletters/2023-07-13/what-does-ripple-xrp-ruling-in-sec-case-mean-for-crypto" target="_blank" rel="noreferrer noopener">ruling</a>&nbsp;in its case against Ripple.



<h2 class="wp-block-heading" id="h-key-background">KEY BACKGROUND</h2>



Thursday evening’s crypto selloff began after the&nbsp;Wall Street Journal&nbsp;<a href="https://www.wsj.com/tech/behind-the-curtain-of-elon-musks-secretive-spacex-revenue-growth-and-rising-costs-2c828e2b?mod=hp_lead_pos5" target="_blank" rel="noreferrer noopener">reported</a>&nbsp;that Elon Musk’s SpaceX wrote down the value of its bitcoin holdings by a total of $373 million in the previous two calendar years. The company has also sold off its crypto holdings, the report added, although it is unclear when this sale happened. Musk and his companies have been a key mover of cryptocurrency prices, with the market often seeing significant movement based on the billionaire’s tweets. However, the SpaceX selloff follows a similar move by Musk’s other company, Tesla, which&nbsp;<a href="https://tesla-cdn.thron.com/static/EIUQEC_2022_Q2_Quarterly_Update_Deck_J8VLIK.pdf?xseo=&amp;amp;response-content-disposition=inline%3Bfilename%3D%22tsla-q2-22-update.pdf%22" target="_blank" rel="noreferrer noopener">disclosed in an earnings report last year</a>&nbsp;that it had sold 75% of its Bitcoin holdings.



<h2 class="wp-block-heading" id="h-further-reading">FURTHER READING</h2>



<a href="https://www.wsj.com/tech/behind-the-curtain-of-elon-musks-secretive-spacex-revenue-growth-and-rising-costs-2c828e2b?mod=hp_lead_pos5" target="_blank" rel="noreferrer noopener">A Rare Look Into the Finances of Elon Musk’s Secretive SpaceX</a>&nbsp;(Wall Street Journal)



Forbes Daily: Get our best stories, exclusive reporting and essential analysis of the day’s news in your inbox every weekday.Sign Up



By signing up, you accept and agree to our&nbsp;<a href="https://www.forbes.com/terms-and-conditions" target="_blank" rel="noreferrer noopener">Terms of Service</a>&nbsp;(including the class action waiver and arbitration provisions), and&nbsp;<a href="https://www.forbes.com/privacy" target="_blank" rel="noreferrer noopener">Privacy Statement</a>.



<a href="https://www.bloomberg.com/news/articles/2023-08-18/bitcoin-plunge-spurs-liquidations-as-spacex-s-token-sale-weighs?srnd=premium" target="_blank" rel="noreferrer noopener">Bitcoin Plunge Spurs Liquidations as SpaceX’s Token Sale Weighs</a> (Bloomberg)

Cryptocurrency Mining In Africa As Poor Sheperdherder Proves A Point

Bitcoin Drops To Lowest Level Since June Amid Wider Crypto Sell-Off

Exploring the emerging trend of using cryptocurrency as a hedge against inflation, highlighting real-world applications and driving economic growth in South Africa.



Cryptocurrencies have had a tumultuous history, often marred by speculation and fraudulent activities. However, the recent decline in public interest has allowed for more realistic applications to emerge, along with appropriate regulation. This maturation of the crypto space has led to an exploration of cryptocurrencies as a potential hedge against inflation.



Ahren Posthumus, CEO of Momint, a tech startup based in Cape Town, believes the reduction in hype has allowed for a focus on real-world projects that are auditable and have a real background. &#8220;We&#8217;re seeing this [crypto as a hedge against inflation] quite a lot&#8230; But not only is it being used as a hedge, it’s also being used as a mechanism to drive the bottom line and solve real problems that South Africa is facing right now,” he says to FORBES AFRICA.



Another notable advantage of cryptocurrency as a hedge against inflation is stablecoins. Since stablecoins are backed by the US dollar, owning them is equivalent to saving in dollars. Storing funds in USDT or earning in other stable tokens like USDC can help keep finances protected from devaluation.



According to Peter Mureu, Marketing Director at Yellow Card, “The rand has dramatically lost its value over the past decade. From ZAR10 for $1 in 2010 to almost ZAR20 for the same amount now, the purchasing ability of the rand has nearly been cut in half. Investing in crypto, especially USDT will allow for that risk to be halved and increase the ability to purchase alternative power sources to deal with the current power issues/load-shedding. For those earning in USDT, even the lack of power is an easily surmountable problem because the USDT is constantly appreciating regardless of the state of the rand.”



One such problem is South Africa’s current energy crisis. The combination of large tax rebates for investments in renewable energy, coupled with platforms such as Momint, has seen large growth in realistic applications for cryptocurrencies. “Our tokenized, fractionalized solar investments qualify for Section 12 rebates… this is massive,” continues Posthumus.



Lerato Lamola, consultant and crypto specialist at Webber Wentzel, notes that South Africa’s legislative process seems to be in line with this, with the country classifying crypto as a financial product rather than a security. This allows crypto to be managed more easily within the framework of existing financial instruments.



“South Africa is really focusing on the man in the street,” says Lamola. “South Africa is now focusing more on how crypto is impacting retail consumers.”



Cryptocurrencies and blockchain technology are emerging as potent tools for socio-economic development in Africa, particularly South Africa. By facilitating low-cost remittances and microloans, they&#8217;re creating meaningful changes that uplift the economy.



Posthumus sees the burgeoning sector as a vehicle for innovation and economic growth, asserting that cryptocurrencies could engender a more equitable financial system by enabling secure and cost-effective transactions.



In Africa, cryptocurrencies and blockchain technology are no longer theoretical concepts; they have become practical tools driving tangible change. Platforms such as Momint are already realizing this – one such example is the ability for users to fractionally invest in renewable energy projects, allowing investors to generate returns, take advantage of renewable investment tax breaks, and invest in sustainable development.



Cryptocurrencies in South Africa and Africa are increasingly seen as more than just volatile investments, but as powerful tools.



&#8220;The biggest thing for us is about having a product that people can use and understand. It’s about education, and we need to be building that trust with the consumer,” adds Posthumus.

Bitcoin on digital circuit board and graph

Crypto As Inflation Hedge: South Africa’s Innovative Approach To Digital Assets

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Bitcoin rose sharply Wednesday and surpassed $30,000 for the first time in months, continuing a days-long increase in the cryptocurrency’s price, despite economic uncertainty and a regulatory crackdown on some crypto exchanges.



<h2 class="wp-block-heading" id="h-key-facts">KEY FACTS</h2>



Bitcoin’s price rose as much as 9.8% on Wednesday, peaking at $30,749.45 at around 12:35 p.m. ET, the first time Bitcoin has topped the $30,000 mark since mid-April.



As of 2:30 p.m. ET, bitcoin was trading at $30,222.52.



The surge Wednesday extended a rally that has caused bitcoin prices to shoot up almost 20% over the last week, along with a smaller 13% jump in ethereum.



Bitcoin took a dive just last week, when the price fell below $25,000 for the first time since March, amid lawsuits from regulators against Binance and Coinbase and after the Federal Reserve&nbsp;<a href="https://www.forbes.com/sites/katherinehamilton/2023/06/15/bitcoin-drops-to-3-month-low-following-fed-rate-decision/?sh=400085da4dde">announced</a>&nbsp;it would not hike interest rates this month but could return to aggressive increases later in the year, both of which led to uncertainty about what the market’s future would look like.



<h2 class="wp-block-heading" id="h-key-background">KEY BACKGROUND</h2>



Bitcoin’s price has nearly doubled since last December, when the cryptocurrency industry was left reeling from the collapse of exchange FTX and arrest of its founder, Sam Bankman-Fried, on fraud charges. Since then, several other crypto firms have faced scrutiny from regulators. Prices of bitcoin are still well below their all-time peak of more than $64,000 in late 2021.



<h2 class="wp-block-heading" id="h-tangent">TANGENT</h2>



The recent increase in bitcoin prices came six days after BlackRock, the world’s largest money manager,&nbsp;<a href="https://www.forbes.com/sites/digital-assets/2023/06/15/blackrocks-spot-bitcoin-etf-plan-appears-to-be-a-case-of-perception-bending-reality/?sh=5aa055684afe">requested</a>&nbsp;to register a spot-market bitcoin ETF, despite the U.S. Securities and Exchange Commission not yet approving any applications for spot bitcoin ETFs. The ETF would own bitcoins that are held in custody by Coinbase, the largest U.S.-based crypto exchange. In the past, the SEC has rejected ETF applications and said the product is not safe enough to be sold to investors and that prior applicants hadn’t proven they could prevent fraud and protect investors, CNBC&nbsp;<a href="https://www.cnbc.com/2023/06/20/bitcoin-hits-new-high-for-june-as-more-financial-incumbents-signal-commitment-to-crypto.html" target="_blank" rel="noreferrer noopener">reported</a>. Meanwhile, a crypto exchange backed by Fidelity, Charles Schwab and Citadel Securities&nbsp;<a href="https://www.wsj.com/articles/crypto-exchange-backed-by-citadel-securities-fidelity-schwab-starts-operations-597f6d46" target="_blank" rel="noreferrer noopener">launched this week</a>.



<h2 class="wp-block-heading" id="h-contra">CONTRA</h2>



U.S. regulators of late have been cracking down on crypto firms and several have been hit with civil lawsuits, leading some to question the timing of BlackRock’s application. The request came just one week after the SEC&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2023/06/06/sec-charges-coinbase-alleges-crypto-trading-platform-operated-as-unregistered-exchange-since-2019/?sh=5f53d79b606e">sued</a>&nbsp;Coinbase, alleging the platform had been operating an unregistered broker since at least 2019. Just one day earlier, the SEC also&nbsp;<a href="https://www.forbes.com/sites/anafaguy/2023/06/05/sec-sues-binance-for-multiple-us-rule-violations/?sh=71839e407fcb">sued</a>&nbsp;Binance, another crypto exchange, for allegedly misusing customer funds.



<h2 class="wp-block-heading" id="h-further-reading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/katherinehamilton/2023/06/15/bitcoin-drops-to-3-month-low-following-fed-rate-decision/?sh=3dbe7d0e4dde">Bitcoin Drops To 3-Month Low Following Fed Rate Decision</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/digital-assets/2023/06/15/blackrocks-spot-bitcoin-etf-plan-appears-to-be-a-case-of-perception-bending-reality/?sh=5aa055684afe">BlackRock’s Spot Bitcoin ETF Plan Appears To Be A Case Of Perception Bending Reality</a>&nbsp;(Forbes)



<a href="https://www.cnbc.com/2023/06/21/bitcoin-rallies-to-highest-level-in-over-a-month-on-etf-news.html" target="_blank" rel="noreferrer noopener">Bitcoin rallies 10% to highest level in over a month as traders get bullish on ETF news</a> (CNBC)

gettyimages-932503482-170667a

Bitcoin Surges Past $30,000 For First Time In Months

​​The Securities and Exchange Commission is suing Binance, the world’s largest cryptocurrency exchange, its U.S. affiliate and founder Changpeng Zhao.



Among the reams of evidence provided by the agency, which include employee text messages, testimonies of former executives and Binance’s audit reports, some accusations seemed especially bizarre. Here are five that caught our eye:



<h2 class="wp-block-heading" id="h-the-former-chief-compliance-officer-said-there-s-no-fking-way-we-are-clean">The former chief compliance officer said “there’s no fking way we are clean”</h2>



In a&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.17.5_1.pdf" target="_blank" rel="noreferrer noopener">text exchange</a>&nbsp;with another employee, Binance’s former chief compliance officer, Samuel Lim, said he did not believe the company was “clean.” As an example, he said that the exchange’s customer service is teaching users how to circumvent sanctions.



<h2 class="wp-block-heading" id="h-binance-is-accused-of-hijacking-more-user-funds-than-ftx">Binance is accused of hijacking MORE user funds than FTX</h2>



The SEC alleges Binance and Binance.US&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.21.0_2.pdf" target="_blank" rel="noreferrer noopener">redirected</a>&nbsp;over $12 billion in clients’ assets to entities controlled by Zhao between 2019 and 2021. That’s $4 billion more than the $8 billion shortfall initially claimed in the case of FTX, formerly the second-largest crypto exchange and the subject of a spectacular collapse in November. Additionally, millions of dollars of customer and corporate funds were commingled in accounts of Merit Peak, a British Virgin Islands trading firm owned by Zhao, according to the agency.



In a&nbsp;<a href="https://twitter.com/cz_binance/status/1666848861497831449?s=20" target="_blank" rel="noreferrer noopener">Twitter post on</a>&nbsp;Thursday, Zhao denied the claim but only addressed the Binance.US part of the allegation. &#8220;To the best of my knowledge, Binance.US had in total roughly $2 billion in user funds. This number in USD equivalent fluctuates a little as crypto prices change. And declining as users withdraw due to recent news. All user funds are accounted for, and never left the Binance.US (unless users withdraw themselves of course), ever.&#8221; he wrote.



<h2 class="wp-block-heading" id="h-binance-received-damning-audits">Binance received damning audits</h2>



Since Binance.US’s inception and through at least 2022, auditors from Armanino have&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.20.8.pdf" target="_blank" rel="noreferrer noopener">identified</a>&nbsp;“significant deficiencies that aggregated to material weaknesses” relating to Binance’s control over the operation of the Binance.US Platform and custody and control of customer assets, and the fact that Binance’s custody of U.S. customer assets was completely opaque” to employees of BAM Trading, Binance.US’s operator. Drawbacks listed in the 2019 audit included commingled customer and company funds, reliance on the parent for financial data and the lack of a disaster plan.



A separate&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.19.10_1.pdf" target="_blank" rel="noreferrer noopener">audit</a>&nbsp;from FGMK shows that Binance.US lost $181 million in 2022.



<h2 class="wp-block-heading" id="h-two-former-ceos-of-binance-us-claimed-that-zhao-ran-the-american-unit">Two former CEOs of Binance.US claimed that Zhao ran the American unit</h2>



Brian Brooks, former chief executive of Binance.US who resigned three months after taking the job,&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.20.3.pdf" target="_blank" rel="noreferrer noopener">said</a>&nbsp;that “what became clear to me at a certain point was CZ was the CEO of BAM Trading, not me.” Binance has maintained that it operates independently from its American affiliate.



Brooks added that during his tenure Binance.US had a group of Shanghai-based employees who received part of their compensations in Binance’s BNB<a href="https://www.forbes.com/digital-assets/assets/bnb-bnb/" target="_blank" rel="noreferrer noopener">BNB</a>&nbsp;<a href="https://www.forbes.com/digital-assets/assets/bnb-bnb/">+0.9%</a>&nbsp;token and were part of a company called “Boran.”



Catherine Coley, the first chief executive of Binance.US–who abruptly left the company in 2021 and has been little heard from since– also revealed the subsidiary was not independent. The SEC alleged that for at least the first year of its existence, the parent company Binance.com insisted that Zhao and Guangying Chen, a close associate of Zhao also known as Heina, had to control the bank accounts of BAM Trading, the U.S. exchange. Coley&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.18.16_1.pdf" target="_blank" rel="noreferrer noopener">told</a>&nbsp;company lawyer Wei Zhou in an electronic exchange: “I’m confused why we go through all of these measures with separating BAM vs. .com and then have a non-U.S. resident, non employee on the bank applications.” Zhou replied “You know what HQ Finance’s position is, right?… They want to have Heina as signatory on US BAM bank accounts”



He advised: “No need to pound the separation thing too much. I think most people understand that by now.”



Coley dubbed an effort to escape Zhao’s control as “Project 1776,” a reference to the American Revolution. She told a fellow employee it was “for our independence,” according to the suit.



<h2 class="wp-block-heading" id="h-wash-trades-occurred-with-employees-knowledge">Wash trades occurred with employees’ knowledge</h2>



The SEC&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf" target="_blank" rel="noreferrer noopener">alleges&nbsp;</a>that wash trading, or self-dealing, which typically results in an inflated trading volume that creates a false appearance of market interest, regularly took place on the Binance.US platform. Much of it occurred through accounts affiliated with Sigma Chain, an entity owned and controlled by Zhao, essentially making it a market maker on the Binance.US Platform.



In an online discussion in January 2021 about a drop in trading volume from Sigma Chain, the company&#8217;s sales director&nbsp;told other employees that 20 other accounts were fronts: &#8220;fyi, these are ALL sigma chain.&#8221; Later that month, an employee found he could trade with himself.



The SEC’s 13-count&nbsp;<a href="https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdf" target="_blank" rel="noreferrer noopener">suit</a>&nbsp;alleges that the crypto exchange, its American branch and Zhao “enriched themselves by billions of dollars while placing investors’ assets at significant risk” and “designed and implemented a multi-step plan to surreptitiously evade U.S. laws.”



Binance.US&nbsp;<a href="https://twitter.com/BinanceUS/status/1666996908651323393" target="_blank" rel="noreferrer noopener">said</a>&nbsp;late on Thursday that it would suspend deposits and withdrawals in U.S. dollars on its platform. In a message to customers, the company said it was “taking necessary actions” in a transition to a crypto-only exchange after the SEC suit discouraged banks from working with it



Zhao, Binance and two U.S subsidiaries have until June 28 to <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.23.0.pdf" target="_blank" rel="noreferrer noopener">respond</a> to the suit, which was filed in the federal court for the District of Columbia. A hearing on an SEC request to freeze the assets of Binance.US is set for June 13 at 2:00 PM Washington time.



<a href="https://www.forbes.com/sites/ninabambysheva/"></a>

SEC Targets $120 Billion of Tokens With Coinbase And Binance Suits

5 Most Surprising Revelations From The SEC’s Binance Lawsuit

After the MtGox hack, Tokyo put in place tough rules that later protected FTX customers. Now, from that secure base, it’s moving to allow blockchain technologies to flourish.



More than a million investors around the world were left stranded when FTX suddenly collapsed in November with an astonishing hole, estimated at $8.7 billion, in its balance sheet. The cryptocurrency exchange and its 130-plus affiliates have been operating in bankruptcy for five months, and a new management team claims to have recovered $7.3 billion of the missing cash and tokens. Yet only one component of the company has returned money to clients.



FTX’s Japanese unit allowed all verified accounts to resume withdrawals on February 21. As of April 25, nearly 10,000 individual and corporate clients had withdrawn crypto and cash worth approximately 23.4 billion yen ($175.4 million),&nbsp;<a href="https://blog.liquid.com/ja/%E5%87%BA%E9%87%91-%E5%87%BA%E5%BA%AB%E3%82%B5%E3%83%BC%E3%83%93%E3%82%B9%E3%81%AE%E9%80%B2%E6%8D%97%E7%8A%B6%E6%B3%81%E3%81%AB%E3%81%A4%E3%81%84%E3%81%A6-1682390331847?_ga=2.70873552.1915823815.1682596738-1460639900.1681400607&amp;_gl=1*1be4ztb*_ga*MTQ2MDYzOTkwMC4xNjgxNDAwNjA3*_ga_KM66WLZ8WM*MTY4MjU5NjczOC4yLjEuMTY4MjU5Njc4Mi4xNi4wLjA." target="_blank" rel="noreferrer noopener">according to</a>&nbsp;the company.



Count this as a victory for Japan’s financial regulators and the strict rules they’ve put in place to protect consumers in the wild and wooly world of crypto.



Japan cracked down with safety and soundness rules from a unified regulator after two big exchange hacks. But now, from that stable (and some in the industry would say overly restrictive) base, it’s seeking to come up with a strategy to become a leader in the collection of mostly decentralized, blockchain-based technologies known as web 3. The U.S., by contrast, has arguably been open to more innovation, but its dueling oversight agencies and lack of rules have created gaps in oversight and a culture of regulation by enforcement that makes strategic planning perilous.



Japan, an early adopter of digital assets, learned the value of regulation early and the hard way, through what remains arguably the most notorious crypto hack ever–the 2014 plunder of 800,000 bitcoins from MtGox, which had been the world’s largest bitcoin exchange. Four years later, Coincheck, another cryptocurrency exchange based in Tokyo, was robbed of $500 million worth of NEM blockchain’s xem coins.



“The drama and shakeup that the U.S. is experiencing around Sam Bankman-Fried, FTX, the Bahamas situation is not relevant in Japan,” says Sheila Warren, CEO of the Crypto Council for Innovation, a Washington, D.C.-based group that advocates for the industry worldwide. That’s because Japan has already been there and done that.



After the MtGox and Coincheck shocks, Japan’s primary financial regulator, the Financial Services Agency (FSA), tightened rules on crypto exchanges, notes Ananya Kumar, associate director of digital currencies at the Atlantic Council’s GeoEconomics Center, the think tank’s unit addressing foreign policy, finance, and economics.



The FSA’s rules include:



<ul>
<li>Customer and company assets must be held separately, with holdings verified in annual audits.</li>



<li>Investors can&#8217;t borrow more than twice their investments for leveraged trades on exchanges. (Many cryptocurrency exchanges, including Binance, allow trading at 100x leverage.)</li>



<li>Exchanges must hold at least 95% of customer funds in cold wallets, which are not connected to the internet.</li>
</ul>



The measures proved instrumental in enabling clients of the Japanese subsidiary of FTX to withdraw their assets after its parent filed for bankruptcy in November. It remains unclear when other FTX clients will be able to get their money back, and how much of it they’ll get.



Japan has thus become a customer-friendly crypto haven but at the expense of stringent supervision of the freewheeling digital assets industry.



Now, Japan is building on that secure base, with a national economic strategy and a bid to lead its allies in creating rules that will effectively govern the industry.



“The FSA contributes to international policy discussion, including the one at the Financial Stability Board—an international organization that monitors and makes recommendations about the global financial system—on crypto-assets by leveraging its experience as a global forerunner in the regulation and monitoring of crypto-asset activities and markets,” the agency told&nbsp;Forbes&nbsp;in written comments.



On April 6, the ruling Liberal Democratic Party’s web3 project team, tasked with drafting crypto-focused policy proposals, released a&nbsp;<a href="https://note.com/akihisa_shiozaki/n/n669dee962b15" target="_blank" rel="noreferrer noopener">white paper</a>&nbsp;outlining several recommendations, including a call for Tokyo to take the lead.



“After crypto winter, Japan may be the first to welcome spring,” the 35-page document predicts. “As a country that has overcome many hardships in the cryptocurrency industry, we are in a position to persuade the world about the immeasurable potential of web3.”



Suggestions in the paper cover tax reform, improved accounting standards, and regulation of blockchain-based finance. There’s even a recommendation for the government to drive the conversation about digital assets at the next Group of Seven (G7) summit, scheduled to be held in Hiroshima later this month.



“While Western financial regulators appear to be single-mindedly focused on tightening regulations in the midst of what is being called a crypto winter, I assess that Japanese financial regulators correctly understand the potential of blockchain and other technologies and are working to design regulations in a forward-looking manner,” Masaaki Taira, the team’s leader and a member of the House of Representatives, said in written comments to&nbsp;Forbes.



In February, Prime Minister Fumio Kishida told&nbsp;<a href="https://www.youtube.com/watch?v=okslrifMl4M" target="_blank" rel="noreferrer noopener">the Budget Committee of Japan’s House of Representatives</a>&nbsp;that there are “various possibilities for using web3” in Japan. He said that the Japanese government could employ blockchain-based mechanisms like&nbsp;<a href="https://www.forbes.com/sites/digital-assets/article/what-are-nfts/?sh=609abead296f">non-fungible tokens</a>&nbsp;and&nbsp;<a href="https://www.forbes.com/sites/jeffkauflin/2022/02/03/daos-arent-a-fad-theyre-a-platform/?sh=210b8c1719d0">decentralized autonomous organizations</a>&nbsp;to revitalize regions and promote “Cool Japan” — a national strategy aimed at promoting the country’s innovations and culture to the rest of the world that dates back to the early 2000s and echoes the U.K.’s “Cool Britannia” policies of the 1990s.



According to Taira, his team–including about 10 members of the Diet (Japan’s national legislature), six lawyers from the private sector with expertise in web3 and 10 leading Japanese digital influencers acting as advisors–works directly with Kishida and several government bodies. “The policy proposals compiled by the project team are adopted almost directly by the LDP, and a significant portion is adopted into government policy. It is an extremely powerful team,” he says.



“The way they talk about crypto is very crypto-native in terms of what the technology enables and what aspects of current regulation are just not workable,” says the Crypto Council’s Warren. “They are saying analogue regulation doesn&#8217;t work in digital environments.”



Japan does not have a long history of being hospitable to blockchain entrepreneurs. In addition to its heavy-handed regulation, Japan&#8217;s tax code is particularly hostile to the industry. It&#8217;s also hard to get new cryptocurrencies approved. After founding their gaming company Murasaki on home shores last year, Shinnosuke Murata and Shunsuke Sasaki recently decided to move their business to the Netherlands. “Why would two Japanese entrepreneurs with considerable experience starting companies in their own country go halfway around the world to set up a new business? wrote Murata in a&nbsp;<a href="https://asia.nikkei.com/Opinion/Why-I-had-to-leave-Japan-to-launch-my-gaming-company" target="_blank" rel="noreferrer noopener">Nikkei op-ed</a>&nbsp;in October. “Simply because it just was not feasible to do so in Japan.”



With a corporate tax rate set around 30% on unrealized gains from cryptocurrency holdings, it is a real struggle to get a new blockchain-based business off the ground, Murata tells&nbsp;Forbes. “Suppose you issue 100 tokens each worth $1 million. Even if you don’t realize gains, you will need to pay $30 million next year. Practically no startup founders can issue a token,” Murata explains.



Major U.S. crypto exchanges like Kraken and Coinbase have recently shut their subsidiaries in Japan,&nbsp;<a href="https://www.coinbase.com/blog/halting-operations-in-japan" target="_blank" rel="noreferrer noopener">citing</a>&nbsp;“market conditions”. Overall, there are&nbsp;<a href="https://www.fsa.go.jp/en/regulated/licensed/en_kasoutuka.xlsx" target="_blank" rel="noreferrer noopener">37</a>&nbsp;crypto exchanges registered in the country, according to the FSA.



Additionally, the agency can take months to review proposals to list new tokens, which results in Japan&#8217;s trading market growing much slower at lower levels of liquidity than those of other countries, says Murata.



“Japan loses entrepreneurs that could build $100 million businesses because of those barriers,” he laments.



The existing framework makes it difficult for local entrepreneurs, agrees Roi Hirata, head of a new Japanese subsidiary of the Avalanche blockchain’s main developer company, New York-based Ava Labs. Avalanche’s brand recognition in Japan is exploding, Hirata says, which has prompted Ava Labs to start building a presence in the island nation. As a first step, his team has partnered with Japanese media giant GREE on a new blockchain game.



“I see a huge opportunity for both intellectual property providers and traditional businesses in Japan to adopt a blockchain like Avalanche, providing both decentralization and compliant service,” Hirata noted in an email to&nbsp;Forbes.



For now, its deep-pocketed tech giants that are leading the blockchain push in Japan.&nbsp;<a href="https://www.forbes.com/sites/ninabambysheva/2023/02/07/forbes-blockchain-50-2023/?sh=577ea334319d">This year’s&nbsp;Forbes&nbsp;Blockchain 50</a>, an annual list highlighting the best enterprise applications of the distributed-database technology, features three Japanese companies, Fujitsu, LINE and NTT.



Social media giant LINE helps create NFTs for 26 big customers including SoftBank, South Korea’s Naver search engine and Visa. According to the company, more than two million wallets have registered on its DOSI NFT platform since September. NTT Docomo, the country’s dominant mobile-phone service provider,&nbsp;has&nbsp;<a href="https://asia.nikkei.com/Business/Technology/NTT-Docomo-to-invest-4bn-in-Web3-using-mobile-infrastructure" target="_blank" rel="noreferrer noopener">pledged&nbsp;</a>to invest up to $4 billion in web3 infrastructure.



Electronics powerhouse Fujitsu teamed up with financial-services giants including Mitsubishi UFJ Mizuho and Sumitomo Mitsui to build the “Ryugukoku,” or the “Japanese Metaverse Economic Zone.” The initiative,&nbsp;<a href="https://www.fujitsu.com/global/about/resources/news/press-releases/2023/0227-02.html" target="_blank" rel="noreferrer noopener">announced</a>&nbsp;in February, seeks to build a shared metaverse infrastructure for large enterprises.



Meanwhile, the FSA is planning to lift its ban on the domestic distribution of stablecoins later this year. The exact date and the coins that will be allowed have not been determined, but decisions are scheduled for June.



“This does not mean that all foreign issued stablecoins will be allowed without any restriction,” the agency told&nbsp;Forbes&nbsp;via written comments. “We will allow stablecoins to be handled after individual examination, if there are no problems from the viewpoint of user protection, etc. Examples include: foreign issuers in their countries being subject to the equivalent regulations as in Japan, and underlying assets being preserved appropriately.”



Late last year, the ruling party’s tax committee approved a proposal to exempt crypto startups that issue their own tokens from paying corporate taxes on unrealized gains. New proposals introduced in the white paper include tax exclusions for companies holding tokens issued by other companies that aren&#8217;t going to be traded short term and to limit taxable events only to instances when the assets are exchanged for traditional currencies.



“I think it is not only really exciting, but it&#8217;s actually paving the way to demonstrate to the rest of the world here is how you create forward-thinking flexible regulation that can navigate this tricky balance of preserving a wide space for innovation while also protecting consumers,” says Warren.



The overarching <a href="https://note.com/akihisa_shiozaki/n/n669dee962b15" target="_blank" rel="noreferrer noopener">message</a> is “Japan is back, Again.”\<a href="https://www.forbes.com/sites/ninabambysheva/"></a>



By Nina Bambysheva, Forbes staff

financial technology flowchart and basic income mining cryptocurrency with blockchain startup unicorn crypto money virtual diagram.businessman hand working with new modern computer.

What Japan Could Teach The U.S.—And The World—About Regulating Crypto

These coins are designed to protect stablecoin holders from inflation. But they are complicated and it’s not clear whether they will actually work.



Stablecoins are digital tokens created to mirror the value of hard currencies like the U.S. dollar. They are critical for liquidity in the $1.2 trillion crypto market because investors need a steady, predictable place to park cash, in part because bitcoin, which will swing as much as 10% in a single day, has largely failed as a store of value. There are $120 billion in stablecoins outstanding. Unfortunately, their history is anything but stable.



In May 2022, TerraUSD, a stablecoin dreamed up by a Stanford-educated South Korean programmer named Do Kwon, famously collapsed because its value was based on an algorithm that proved to be unreliable in the face of an asset run. More than $45 billion in market value evaporated in a single day setting off a crypto market plunge. After being on the lam for nearly a year, Do Kwon was recently arrested in Montenegro. Then, there is the world’s largest stablecoin issuer Tether, which has $80 billion outstanding, but has long avoided even the most basic disclosures (like where it is located) and has been in trouble with regulators numerous times. On several occasions Tether’s U.S. dollar coin (USDC) has “broken the buck” and dipped below $1.00 in value.



Even the most regulatory compliant and transparent stablecoin, Circle’s USD Coin (USDC), which has $30 billion outstanding, has disappointed investors. When Silicon Valley Bank collapsed on March 10, USDC’s Boston-based issuer Circle admitted to having $3.3 billion on deposit at the bank, mostly uninsured. The price of USDC lost its peg, nosediving to $0.88 cents on March 11.



But stablecoins are still essential for serious players in the digital asset world, and hope springs eternal in crypto, so a new product has hit the market called promising an inflation-adjusted version of stablecoins. Dubbed “flatcoins” these new tokens are designed to to maintain purchasing power parity with a basket of goods by keeping up with inflation.



So far only about $100 million in flatcoins have been minted but with inflation stubbornly stuck at 4.6%, demand for these novel tokens is growing. Already Coinbase is actively looking to seed flatcoins on its new Ethereum Layer 2 blockchain Base.



“We are fascinated by the deep thought we’re seeing in decentralized stablecoin design and are particularly interested in ‘flatcoins’ – stablecoins that track the rate of inflation, enabling users to have stability in purchasing power while also having resiliency from the economic uncertainty caused by the legacy financial system,” wrote Coinbase in a recent post.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Flatcoins are the brainchild of former Coinbase Chief Technology Officer Balaji Srinivasan and an Iranian born programer Sam Kazemian, who came up with a stablecoin protocol named Frax in 2021, and an inflation tracking index called Frax Price Index (FPI).



“The term flatcoin was basically meant to signify by me and Balaji that it stays flat to a standard of living, &#8221; says Kazemian who notes that his new flatcoin would be partially backed by collateral like USDC, and partially “stabilized” algorithmically.



Here are the basics mechanics of the new inflation-protected stablecoins. The first thing the Frax programmers set out to do is identify a targeted standard of living to track. Kazemian built a feed with a blockchain data provider called Chainlink to publish each month’s CPI from the Federal Reserve’s Bureau of Labor and Statistics (BLS) onto the Ethereum blockchain. With the current 12-month trailing inflation rate at 5%, Frax has a set of smart contracts programmed to automatically conduct algorithmic trading with a goal of profiting enough to match the monthly inflation print sent from Chainlink.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



In theory, this would mean that if a single tether or USDC is still worth $1.00, in a 5% inflation world an FPI would be redeemable for $1.05 of collateral. In order to earn the necessary amounts to cover the inflation premium, Kazemian’s team invests collateral in DeFi lending protocols such as Aave and Convex, which primarily focus on stablecoin markets. These DeFi protocols earn yield for letting borrowers access their tokens. These returns then become available for FPI minters to withdraw. However, FPI is run by a Decentralized Autonomous Organization, which could make changes to its risk parameters in the future.



If this sounds complicated and risky, it is, especially relative to simply owning a stablecoin like USDC and simultaneously hedging with something like a gold ETF or even Treasury Inflation Protected Securities (TIPS), where the U.S. government effectively covers the inflation risk.



Even more complicated is another flatcoin called Nuon. Rather than simply matching the BLS’ inflation reading, it joined up with a sister company called Trustflation to produce real-time inflation data based on a proprietary methodology. For instance, while the BLS inflation has eight main categories: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services, Trustflation has 12. Additions include clothing/footwear and alcohol/tobacco. The company also weights categories differently than the BLS and pulls in data real-time through service agreements with various providers instead of just relying on monthly updates.



“When we studied inflation we realized that it was calculated by 477 people on a monthly basis in a nebulous fashion,” says Trustflation and Nuon CEO Stefan Rust. “We decided to use a developer approach, take the same metrics, pull it from API&#8217;s, and have it updated in real time.”



While no one would argue that the collection and indexing of official inflation data doesn’t have numerous flaws, including an antiquated monthly production schedule, Trustflation’s Moneyball-esque approach to calculating real time inflation data does not come without drawbacks.



“When inflation is between 1.5%, and 2.5% per annum, it&#8217;s probably a bit of overkill, but when topline inflation is 8% to 9% those numbers may be meaningful on a day-to-day basis,” says Peter C. Earle, an economist at the American Institute for Economic Research. “I think it&#8217;s interesting to capture daily or intraday inflation data, but I also think there&#8217;s a lot of statistical noise.”



That noise could become deafening if the data feeds which determine prices and return targets , known in the crypto world as oracles, become corrupted. Crypto forensics firms report that so called oracle manipulation attacks cost investors $362 million last year. It is not impossible to foresee a scenario where an oracle gets manipulated to force one of these platforms to employ a riskier trading strategy than anticipated.



But data collection is not the only worry flatcoin buyers need to worry about. Behind Nuon’s inflation-protection guarantee is a complicated and potentially risky proposition. When an individual “mints” Nuon, he must deposit ether in its protocol, which then automatically buys the same amount of Nuon on the open market and deposits it in a DeFi protocol such as Uniswap or Pancakeswap. Income generated from this deposit, known as “yield farming,” is added to a user’s collateral position (which is the original ether) essentially as an “insurance.” Thus unlike FPI, nuon positions are overcollateralized &#8211; for instance a user must deposit $1.30 worth of ether to mint $1 of nuon.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



So far both FPI and nuon are having trouble tracking inflation (see charts). According to CoinGecko, FPI is currently priced at $1.08, but in its almost 12 months in existence it has traded as high as $1.18 and as low as $0.92, which would imply that in the last 12 months, inflation has spiked as high as 18% and below 1%. Nuon has dramatically outperformed inflation in its short existence; it only launched in March. Right now it is priced at $1.24, but it has been as high as $1.44.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Ifflatcoins are meant to be the next evolution of digital “safe money&#8221;, stablecoin’s biggest player’s have yet to sign on. Circle, which issues USDC, has no plans to issue a flatcoin. Circle already has more than $25 billion in short Treasury bills backing its USDC tokens, but it is precluded from buying TIPS, because they are not issued in durations shorter than five years. Tether did not respond to requests for comment.



Flatcoins are so new they do not yet appear in any of the current stablecoin regulation bills circulating around Capitol Hill. The bi-partisan draft introduced in April proposed a ban on new algorithmically derived stablecoins such as TerraUSD/LUNA, where the stablecoin was backed by a sister token. Flatcoins use computer algorithms to derive their valuations, however, in their current incarnation do not fit neatly into the bill’s specific description. Still, any new stablecoins would have to be issued by a licensed entity at the state or federal level, so these products would need a bank backer if they expect to ever go mainstream.



Rust says that there are no restrictions on users in the U.S. from minting Nuon right now. “I guess, they are in a bit of a gray zone [with regards to how flatcoins fall under securities regulation]&#8230;At the moment, all the indications are that stablecoins pegged to the dollar or euro will fall under some regulation.”



Forbes called various legislators and regulators involved with the recently proposed stablecoin legislation to ask about flatcoins but most hadn’t even heard of them yet. Said Representative Brad Sherman (D-CA), a noted crypto critic, “We already have something like that. They’re called TIPS.”



By Steven Ehrlich, Forbes Staff

Mid-section of young Asian woman using smartphone in city at night, against illuminated street lights bokeh, working with Bitcoin technologies, investing or trading Bitcoin on cryptocurrency. Business on the go

Beware Of Flatcoins, Crypto’s Inflation Busting Fad

Coinbase, Binance and other exchanges hold at least $2.25 billion of shadow ether, as the latest lucrative innovation in digital assets ramps up.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Cryptocurrency exchange&nbsp;<a href="https://www.forbes.com/sites/stevenehrlich/2023/03/01/coinbase-blockchain-plan-gets-warm-reception-success-hinges-on-converting-crypto-diehards/?sh=2113589f1fab">Coinbase</a>&nbsp;is sitting on a $1.5 billion pile of phantom cryptocurrency pegged to the price of ether. Binance has a similar $750 million stash. These tokens, created to be used in what are essentially lending programs, are just entries in the exchanges’ computers, but to outside observers they appear as assets sitting in their corporate crypto wallets.



Binance’s 400,000 tokens would suddenly come to life if investors decide to use the exchange as an intermediary in posting ether (ETH) collateral to the Ethereum blockchain through a process called liquid staking. But until they do, anybody seeking to determine the amount of Binance’s assets would have to subtract the value of the spectral crypto from the visible total, now $2.77 billion, according to data from Arkham Intelligence. Things might be clearer if Binance actually published its balance sheet, which would be expected to show a corresponding liability. However, despite 70 million customers worldwide, it doesn&#8217;t share financial details with the public.



“Those [tokens] not in circulation are held in a specific reserve account with strict controls and multi-party approval,” says a Binance spokesperson.



Coinbase–which declined to comment for this story and is&nbsp;<a href="https://www.forbes.com/sites/nicholasreimann/2023/03/22/coinbase-crypto-exchange-faces-possible-sec-charges-company-says/?sh=659b5b0912fc">facing a likely enforcement action</a>&nbsp;from the Securities and Exchange Commission related to its staking offerings–does not count its unreleased assets on its balance sheet, but does disclose them in its SEC filings.



Welcome to the fast-growing world of liquid staking. Staking in crypto parlance involves posting a digital asset like ether to a blockchain as collateral in exchange for the right to process transactions and earn in-kind rewards like tokens. Staked tokens are normally locked up for a period of time so they can&#8217;t be immediately withdrawn and cause a run on the platform. Liquid staking, by contrast, allows holders of tokens like ether the opportunity to use a tracking token of sorts for trading while the underlying token is still sitting “staked” on the blockchain, continuing to earn yield. In some ways it allows crypto investors the chance to have their cake, or “stake,” and eat it too.



There is already more than $18 billion committed to platforms that offer the service, according to&nbsp;<a href="https://dune.com/hildobby/eth2-staking" target="_blank" rel="noreferrer noopener">data</a>&nbsp;from Dune. Investors can earn annual returns of 2% to 12% depending on the platform, according to&nbsp;<a href="https://www.stakingrewards.com/staking/?page=1" target="_blank" rel="noreferrer noopener">Staking Rewards</a>, and they keep control of their crypto. But they have to trust the integrity of the intermediaries and the security of the platforms to safeguard their assets.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



In December of 2020 Binance minted an astounding 100 million Binance ETH, known as “beths”, each representing one ether at a time when there were only 120 million ETH in existence. Until June 2022, if counted, that hoard would have added about $483 billion to Binance’s visible wallet assets, multiplying them fivefold. However last year it started destroying these phantom tokens and now only 1.5 million remain according to Binance’s own BNB Smart Contract (BSC) Chain&nbsp;<a href="https://bscscan.com/token/0x250632378e573c6be1ac2f97fcdf00515d0aa91b" target="_blank" rel="noreferrer noopener">explorer</a>.



It’s almost as if Charles Schwab manufactured a massive amount of an ETF like Invesco’s QQQ Trust and simply held the shares on its books without acquiring the corresponding stocks in the Nasdaq 100 index and putting them in a trust, the way ETF shares are normally created. And since there is no SEC or regulator involved, no one would care if those ETF shares fluctuated in value or amount or were simply discarded. This is effectively what Binance and Coinbase have been doing with the special staking ether they have created since 2020.



A Binance spokesman would not say exactly why so many tokens were minted in 2020, other than it was cheaper to manufacture them in bulk.



“There are no accounting standards that speak to any of this stuff specifically, and even the related standards are not specific,” says Francine McKenna an accounting lecturer at the University of Pennsylvania’s Wharton School of Business. Staking can take many forms, she adds, and existing rules do not contemplate “all the details of all these different variations on all these products.”



Creating billions worth of staking tokens out of thin air and then destroying them, is just the latest example of a crypto company playing by its own rules. Disgraced former crypto exchange FTX, played fast and loose with disclosure rules, and more recently Binance has come under scrutiny. A&nbsp;<a href="https://www.courtlistener.com/docket/67092867/1/commodity-futures-trading-commission-v-zhao/" target="_blank" rel="noreferrer noopener">civil complaint</a>&nbsp;by the U.S. Commodity Futures Trading Commission in March claimed that Binance consists of “an opaque web of corporate entities.” Last February, a&nbsp;Forbes&nbsp;<a href="https://www.forbes.com/sites/javierpaz/2023/02/27/binances-asset-shuffling-eerily-similar-to-maneuvers-by-ftx/?sh=7e80d91bccd4">investigation</a>&nbsp;showed that the exchange appropriated more than $1 billion of collateral meant to back stablecoins in August, shifting the assets to other uses without alerting the customers who were affected.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Liquid staking joins&nbsp;a long list of dubious crypto industry innovations that have included initial coin offerings, algorithmic stablecoins and decentralized finance. Like its predecessors, liquid staking is a creative solution to a key pain point: the illiquidity that comes with staking ether.



Although digital assets–like traditional currencies–do not generate income by themselves, there are ways that investors can earn passive revenue from their holdings, similar to making a loan. Posting assets to blockchains such as Ethereum, Solana, Algorand and Polkadot as collateral, give lenders (known as stakers) the right to earn fees by processing blockchain transactions. Ethereum for example, currently brings about 4.8% of annual return, and there is always the chance that a digital asset you have staked appreciates, magnifying your return. But this process has drawbacks.



Depending on the platform, it could take weeks to withdraw crypto once it has been staked. The situation has been even more extreme with Ethereum. Although staking was enabled for the blockchain in December 2020, withdrawals were not permitted until a major upgrade, known as the “Shapella update”, was completed on April 12, 2023.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h4 class="wp-block-heading" id="h-binance-asset-balance-history">BINANCE-ASSET BALANCE HISTORY</h4>



<h4 class="wp-block-heading" id="h-in-billions-ethereum-and-bnb-chains">In $billions, Ethereum and BNB Chains</h4>



This chart erroneously shows the value of Binance&#8217;s digital assets, which were inflated by BETH tokens despite little actual ETH staking &#8211; only 2% of the value claimed.&nbsp;SOURCE: ARKHAM INTELLIGENCE



This illiquidity has been a major impediment for many would-be stakers and in response, a cottage industry of service providers, including Coinbase and Binance, have surfaced, willing to exchange an investor’s staked ether for a different tracking crypto token (such as beth). The ether is locked on the blockchain, while the new token is available for use in applications such as decentralized finance; it also can be sold. The blockchains available for liquid staking vary by geography and provider, with some like U.S. regulated Coinbase accepting Cardano, Cosmos, Ethereum, Solana and Tezos, while international investors using exchanges like OKX exchange and Huobi exchange can stake dozens of tokens.



Exchanges like Coinbase profit by taking a cut of the fees earned by staking customers. This has been a lucrative and growing business for Coinbase. In its quarterly filings, it includes staking fees within “blockchain rewards.” In 2022 these fees amounted to $275 million, or nearly 9% of revenue, up from $223 million or 3% of 2021’s top line.



While the idea seems simple, the reality is more complex, which can create risks for investors. For one, stakers have to trust centralized exchanges not to use these pools of new tokens themselves, effectively adding duplicative cryptocurrency to the market.



Then there is the issue of exchanges making up new rules as they go along. Until April 24, Binance limited the use of beths to deposits on its Binance Launchpool, essentially an initial public offering platform that allowed users to participate in unproven crypto-related projects that the global cryptocurrency exchange was endorsing. Now Binance offers a way for users to use beths for a wider variety of investments on the Binance Smart Chain and Ethereum, bringing the currency more in line with other liquid-staking tokens but in a unilateral action that can create additional security risks.



Coinbase has been&nbsp;<a href="https://www.forbes.com/sites/nicholasreimann/2023/03/22/coinbase-crypto-exchange-faces-possible-sec-charges-company-says/?sh=15acd57712fc">told</a>&nbsp;it is likely to face enforcement action by the U.S. SEC that may involve its staking service. Like Binance, it minted a token for staking, this one called Coinbase wrapped staked ETH (CBETH). But in contrast to Binance, it began with a modest 500,000 units.



Some of the spare tokens minted are essential for an exchange’s liquidity. Exchanges need to keep a reserve available to satisfy regular daily staking volume. There are minor costs involved in minting tokens, and without a supply on hand it might not be possible to immediately provide liquidity to potential stakers. But having too many can create questions for customers and regulators.



How many is enough?



“If I’m an exchange with $1 billion in staked ether and I’m minting my internal tokens in $10,000 batches that&#8217;s not material,” says Paul Brody, principal and global blockchain leader at Ernst &amp; Young. “I would want to know, are they sitting on $1 billion in undistributed tokens or $10,000, $50,000?”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



An alternate approach&nbsp;to liquid staking does away with the temptation to misdirect spare tokens, but creates problems of its own. Smart contracts–agreements that are automatically executed under specified conditions–address the problem of too many tokens on hand. There are decentralized liquid-staking providers such as Liquid Collective, Lido, Stakewise and RocketPool that exist almost entirely as sets of smart contracts. Lido is the world’s largest liquid staker, with $11 billion in deposited assets.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h4 class="wp-block-heading" id="h-liquid-staking-total-value-locked">LIQUID STAKING TOTAL VALUE LOCKED</h4>



<h4 class="wp-block-heading" id="h-tvl-in-eth-staked-may-1-2023">TVL in ETH staked, May 1, 2023</h4>



Select firms providing staking services ranked by total value locked, measured in ETHs, May 1, 2023SOURCE: FORBES, DUNE



Smart contracts can automate the process, staking the original token on the appropriate blockchain, then minting the liquid version for the customer. “The transparency that is associated with more decentralized staking protocols is definitely a plus because users can verify for themselves that the protocol has a corresponding amount of ether for its liquid token supply,” says Christine Kim, vice president of research at Galaxy Digital, a New York-based investment management and technology firm. Among the drawbacks is that the immediate minting of staking tokens is that the process is more expensive than minting the tokens in advance the way “centralized” exchanges Binance and Coinbase have.



An even larger issue is that decentralized finance protocols are more susceptible to hacks. According to Chainalysis, DeFi hacks accounted for 82% of all stolen digital assets last year, totaling $3.1 billion. Of this sum, 64% was taken from software programs known as cross-chain bridges, which allow users to move assets between decentralized-finance&nbsp;protocols. They work by having owners lock up tokens in smart contracts in exchange for a new corresponding token replica. Although there are key differences between bridges and liquid-staking protocols–such as the locked up tokens sitting in a blockchain rather than crypto wallets–this type of arrangement can expose liquid staking holders to more risks. This is especially true when tokens are moved from Ethereum validators into other wallets for distribution.



With the Shapella update to Ethereum complete, the metaphorical stakes are going to rise. The ability to withdraw funds is bound to make the market more attractive to institutional investors. Nikos Panigirtzoglou, managing director for global market strategy at JPMorgan told&nbsp;Forbes&nbsp;that “Over the medium to longer term we expect Ethereum staking to grow and converge with that of other blockchains.” Cardano, Solana, Algorand and Polkadot have 35-70% of their tokens staked. Ethereum is at 15%, so even just doubling this percentage would add $35 billion in staked tokens at current prices. A good portion of those funds would likely be liquid staking protocols because of the ability to put these tokens to other uses while the underlying asset is staked.



Buyer beware.



<a href="https://www.forbes.com/sites/javierpaz/"></a>By Javier Paz, Forbes Staff

Liquid Staking: Crypto’s New Phantom Money Machine

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



The price of bitcoin rose past $30,000 for the first time since June on Tuesday, as the cryptocurrency continues a rally that has seen its price nearly double since the start of the year.



Bitcoin breached the $30,000 mark for the first time since June 2022 on Tuesday.GETTY IMAGES



<h2 class="wp-block-heading" id="h-key-facts">KEY FACTS</h2>



The price of the world’s most valuable cryptocurrency stood at $30,100 early on Tuesday morning, up more than 6.5% in the previous 24 hours.



The value of bitcoin has risen by more than 80% since the start of the year.



Ether, the world’s second-largest cryptocurrency, also saw its value climb on Tuesday as it moved past $1,900 for the first time since August.



<h2 class="wp-block-heading" id="h-key-background">KEY BACKGROUND</h2>



The price of bitcoin nosedived sharply last year after the crypto industry became mired in multiple scandals, including the collapse of the Terra/Luna tokens, the bankruptcies of crypto lender Celsius, and crypto exchange FTX. The reason behind bitcoin’s current recovery is partially attributed to the expectation that upcoming inflation numbers could prompt a pause in the Federal Reserve’s ongoing rate hikes,&nbsp;<a href="https://www.cnbc.com/2023/04/11/bitcoin-tops-30000-for-the-first-time-since-june.html" target="_blank" rel="noreferrer noopener">according to</a>&nbsp;CNBC. In addition to this, Bloomberg&nbsp;<a href="https://www.bloomberg.com/news/articles/2023-04-11/bitcoin-btc-climbs-to-30-000-for-the-first-time-since-june?srnd=premium-asia" target="_blank" rel="noreferrer noopener">reports</a>, the cryptocurrency’s current lower volume of trading of the cryptocurrency may also be magnifying the surge in prices.



<h2 class="wp-block-heading" id="h-big-number">BIG NUMBER</h2>



$68,789.63. This was the price of bitcoin in November 2021, when its value was at an all-time high.



<a href="https://www.forbes.com/sites/siladityaray/"></a>By Siladitya Ray, Forbes Staff

Digital Composite Image Of Cropped Hands Using Computer Keyboard By Bitcoin Icons

Bitcoin Breaches $30,000 For The First Time In Ten Months

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Bitcoin hit a two-month high over the weekend as crypto continues to rebound from a crash following the stunning collapse of industry titans FTX and Alameda Research, though looming macroeconomic concerns may soon eat into crypto’s gains.



<h2 class="wp-block-heading">KEY FACTS</h2>



Bitcoin traded as high as $21,325 late Sunday, its first time over $21,000 since November 5, the day before Binance CEO Changpeng Zhao&nbsp;<a href="https://twitter.com/cz_binance/status/1589283421704290306?lang=en" target="_blank" rel="noreferrer noopener">said</a>&nbsp;his exchange sold all of its holdings in rival cryptocurrency exchange FTX’s token following a report on the questionable finances at FTX and Alameda, setting forth the firms’ unraveling.



Relatedly, the combined market value of all cryptocurrencies passed the $1 trillion threshold for the first time since early November, <a href="https://www.coingecko.com/en/global-charts" target="_blank" rel="noreferrer noopener">according</a> to CoinGecko, sitting at $1.02 trillion on Monday.



Bitcoin—the world’s most valuable digital asset—pared gains slightly Monday, trading at $21,108 as of Monday at 12:45 EST, but bitcoin is still up 27% since the start of 2023, while Ether, the second valuable crypto coin by market value, is up 30% year-to-date.



The jump comes during a broader boom for equities, with the S&amp;P 500 up 4.6% in 2023, as more and more data <a href="https://www.forbes.com/sites/jonathanponciano/2023/01/12/inflation-fell-01-in-december-but-prices-still-spiked-65-over-the-past-year/?sh=42795b633997">indicates</a> inflation is cooling, which investors hope will cause the Federal Reserve to in turn take its foot off the interest rate hike pedal.



<h2 class="wp-block-heading">CRUCIAL QUOTE</h2>



Crypto is the “biggest winner” during the current “boost in risk appetite,” OANDA analyst Craig Erlam wrote in a Monday note, cautioning it remains unclear if this is a true “resurgence or just a brief rebound.”



<h2 class="wp-block-heading">KEY BACKGROUND</h2>



Bitcoin peaked at over $65,000 in November 2021, while the total crypto market peaked at just over $3 trillion at the same time. Digital assets cratered in value in 2022 during a broader downturn caused by several interest rate hikes from the Fed, causing investors to largely turn their back on risk-sensitive assets, and a breakdown in trust in the crypto industry as several major crypto players went bankrupt. Despite its recent spike, Bitcoin is still down 51% from this point in 2022.



<h2 class="wp-block-heading">CONTRA</h2>



The recent spike in equity prices will soon “hit an air pocket and end up looking premature,” JPMorgan Chase analysts led by Mislav Matejka wrote in a recent note, adding the “market is behaving as if we were in an early cycle recovery phase, but the Fed has not even concluded hiking yet.”



<h2 class="wp-block-heading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/jonathanponciano/2023/01/13/recession-now-seems-more-likely-than-not-heres-what-big-bank-earnings-revealed-about-the-economy/?sh=625481fc4896">Recession Now Seems More Likely Than Not—Here’s What Big Bank Earnings Revealed About The Economy</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/davidjeans/2023/01/15/ftx-deltec-bank-jean-chalopin-moonstone/?sh=72d3ad1211e4">FTX Secretly Channeled A $50 Million Loan To Its Bahamian Bank Through An Executive’s Company</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/javierpaz/2023/01/10/binance-is-bleeding-assets-12-billion-gone-in-less-than-60-days/?sh=57a2e20953c3">Binance Is Bleeding Assets, $12 Billion Gone In Less Than 60 Days</a>(Forbes)



By Derek Saul, Forbes Staff

Business fund investor planning for investment in crisis

Crypto Market Crosses $1 Trillion For First Time In Months As Bitcoin Recovers From FTX-Driven Crash

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Yet another major cryptocurrency player is in serious danger of going under, as sources&nbsp;<a href="https://www.wsj.com/articles/crypto-lender-genesis-lays-off-30-of-staff-11672939434?mod=hp_lead_pos6" target="_blank" rel="noreferrer noopener">told</a>&nbsp;the&nbsp;Wall Street Journal&nbsp;the embattled lender Genesis is weighing filing for bankruptcy, while the firm said Thursday it had drastically reduced its headcount.



<h2 class="wp-block-heading">KEY FACTS</h2>



Genesis laid off 30% of its employees, a person familiar with the matter told&nbsp;Forbes, matching an earlier report&nbsp;<a href="https://www.coindesk.com/business/2023/01/05/crypto-lender-genesis-lays-off-30-more-of-its-staff/" target="_blank" rel="noreferrer noopener">from</a>&nbsp;CoinDesk, which along with Genesis is also owned by one-time billionaire Barry Silbert’s Digital Currency Group (Genesis didn’t immediately respond to&nbsp;Forbes’ request for comment).



Though Genesis has yet to publicly&nbsp;<a href="https://www.reuters.com/technology/us-crypto-broker-genesis-says-it-is-working-avoid-bankruptcy-filing-2022-11-30/" target="_blank" rel="noreferrer noopener">indicate</a>&nbsp;it will file for bankruptcy, its outlook is bleak: The firm&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2022/11/16/crypto-lender-genesis-suspends-withdrawals-ftx-collapse-created-unprecedented-market-turmoil/?sh=65bfdc67782d">suspended withdrawals</a>&nbsp;from its lending unit November 16 and has not&nbsp;<a href="https://www.coindesk.com/business/2023/01/04/genesis-ceo-says-solution-requires-more-time/" target="_blank" rel="noreferrer noopener">unveiled a plan</a>&nbsp;to resume withdrawals in the seven weeks since.



Genesis owed creditors $1.8 billion as of December, a person familiar with the matter&nbsp;<a href="https://www.forbes.com/sites/johnhyatt/2022/12/24/these-crypto-founders-and-bitcoin-moguls-lost-116-billion-in-2022/?sh=3f9e886f42b2">told</a>&nbsp;Forbes&nbsp;at the time.



<h2 class="wp-block-heading">KEY BACKGROUND</h2>



The disclosure&nbsp;<a href="https://www.forbes.com/sites/dereksaul/2023/01/05/silvergate-stock-crashes-nearly-50-as-bank-grapples-with-crypto-crisis/?sh=219b1c0a3c89">comes</a>&nbsp;the same day as leading crypto bank Silvergate Capital’s disclosure of $8.1 billion in net withdrawals over the last three months of 2022. Genesis had lent&nbsp;<a href="https://www.wsj.com/articles/genesis-lent-2-4-billion-to-hedge-fund-three-arrows-capital-11658170583" target="_blank" rel="noreferrer noopener">$2.4 billion</a>&nbsp;to the Three Arrows Capital crypto hedge fund that went insolvent in June, and Genesis&nbsp;<a href="https://twitter.com/GenesisTrading/status/1590836594382032896?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1590836594382032896%7Ctwgr%5Ecfd87cfddbbdc349e403421e436c21257f1872cb%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fwww.reuters.com%2Ftechnology%2Fblockfi-genesis-crypto-firms-reel-exposure-ftx-2023-01-05%2F" target="_blank" rel="noreferrer noopener">said</a>in November that it had $175 million in funds locked on its FTX accounts but had no outstanding loans to FTX or Alameda Research, the firms founded by the billionaire turned pariah Sam Bankman-Fried.



<h2 class="wp-block-heading">SURPRISING FACT</h2>



Genesis would join a long list of one-time crypto giants in bankruptcy: Alameda, BlockFi, Celsius, FTX, Three Arrows and Voyager all filed for insolvency last year.



<h2 class="wp-block-heading">TANGENT</h2>



Cameron Winklevoss, the billionaire president of the crypto exchange Gemini&nbsp;<a href="https://twitter.com/cameron/status/1609913051427524608" target="_blank" rel="noreferrer noopener">wrote</a>&nbsp;a scathing open letter to Silbert Wednesday, accusing him of engaging in “bad faith stall tactics” regarding Gemini’s outstanding $900 million loan to Genesis, allegations Silbert subsequently denied.



<h2 class="wp-block-heading">FORBES VALUATIONS</h2>



We&nbsp;<a href="https://www.forbes.com/sites/johnhyatt/2022/12/24/these-crypto-founders-and-bitcoin-moguls-lost-116-billion-in-2022/?sh=3f9e886f42b2">estimate</a>&nbsp;Silbert, worth $3.2 billion as of last April, to now be worth $0, largely due to Genesis’ mountain of debt. The Winklevoss twins are each worth $1.1 billion, according to our estimates, down from $4 billion apiece in April 2022 as the crypto industry tumbled.



<h2 class="wp-block-heading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/jonathanponciano/2022/11/16/crypto-lender-genesis-suspends-withdrawals-ftx-collapse-created-unprecedented-market-turmoil/?sh=65bfdc67782d">Crypto Lender Genesis Suspends Withdrawals: FTX Collapse Created ‘Unprecedented Market Turmoil’</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/dereksaul/2023/01/05/silvergate-stock-crashes-nearly-50-as-bank-grapples-with-crypto-crisis/?sh=219b1c0a3c89">Silvergate Stock Crashes Nearly 50% As Bank Grapples With Crypto Crisis</a>&nbsp;(Forbes)



By Derek Saul, Forbes Staff

Cryptocurrency ATMs in Hungary’s Capital

Crypto Broker Genesis Cuts 30% Of Staff, Reportedly Mulls Bankruptcy

A methamphetamine and cocaine gang operating across the U.S., Mexico, Europe and Australia used the world’s biggest cryptocurrency exchange Binance to launder tens of millions in drug proceeds, according to an ongoing investigation by the US Drug Enforcement Administration. Between $15 and $40 million in illicit proceeds may have been funneled through Binance, the DEA alleged.



The previously-unreported case provides rare insight into how Mexican-based narcotics dealers are increasingly looking to cryptocurrency as a means to obscure illicit business transactions. At the same time, it shows federal agencies moving to track illegal use of cryptocurrency &#8211; once touted as untraceable &#8211; and how closely they work with exchanges like Binance to track organized crime (though Binance itself is&nbsp;<a href="https://www.reuters.com/markets/us/us-justice-dept-is-split-over-charging-binance-crypto-world-falters-sources-2022-12-12/" target="_blank" rel="noreferrer noopener">facing a federal probe</a>over concerns about money laundering on its platform).



According to a search warrant obtained by Forbes, the investigation into the unnamed Mexican gang’s use of Binance began in 2020 when multiple DEA informants using localbitcoins.com, a crypto trade forum, interacted with a user offering to exchange cryptocurrency for cash. The transaction appeared to be simple: send Bitcoin or USDC (a “stablecoin” whose value is pegged to the U.S. dollar) to the seller’s account and then meet him or a contact to collect the cash in person. The trader &#8211; Mexican national Carlos Fong Echavarria &#8211; told them the cash came from “ family restaurants and cattle ranches,” according to the government’s account.



<blockquote class="wp-block-quote has-text-align-center">This is actually an example of where the transparency of blockchain transactions works against criminal actors.<cite>Matthew Price, senior director of investigations at Binance </cite></blockquote>



By surveilling the alleged couriers of the cash, and having an undercover agent deal directly with Echavarria, the DEA said it tracked the money back to drug sales. In August, Echavarria, who was arrested last year, pleaded guilty to two charges, one of drug dealing, the other of money laundering. He awaits sentencing.



The DEA’s investigation continued during his prosecution. With assistance from Binance, the agency tracked Echavarria’s crypto across 75 transactions he made with the undercover agent, totalling $4.7 million. One account appeared to be taking money from Echavarria and continuing the laundering process, the DEA said. In 2021, the owner of that account made 146 purchases of cryptocurrency worth nearly $42 million and sold over $38 million across 117 sell orders, according to the warrant. The DEA said it believed at least $16 million of that was derived from drug proceeds. It didn’t offer any explanation for the source of the remaining funds.



Thanks to information provided by Binance, the DEA was able to identify the owner of that second account. Though he’s named in the warrant, Forbes is withholding his name from publication as he is yet to be charged.



Binance senior director of investigations Matthew Price, a former IRS cybercrime agent, told&nbsp;Forbes&nbsp;the Echavarria case was notable as it showed a Mexican-based operation laundering significant drug money through cryptocurrency wallets. Previous&nbsp;<a href="https://www.reuters.com/article/mexico-bitcoin-insight-idUSKBN28I1KD" target="_blank" rel="noreferrer noopener">investigations have found evidence of cartel use of cryptocurrency</a>, but transactions were only in the tens of thousands.



“This is actually an example of where the transparency of blockchain transactions works against criminal actors,” Price told&nbsp;Forbes. “The bad guys are leaving a permanent record of what they&#8217;re doing.



This isn’t the first time Binance has helped the DEA. Earlier this year, it&nbsp;<a href="https://www.binance.com/en/blog/ecosystem/crypto-and-money-laundering-an-inconvenient-truth-421499824684903925" target="_blank" rel="noreferrer noopener">said</a>&nbsp;it worked with the agency to seize over 100 accounts linked to suspected drug money laundering in Mexico.



Those seizures pointed to a trend identified in a&nbsp;<a href="https://www.incb.org/documents/Publications/AnnualReports/AR2021/Annual_Report/E_INCB_2021_1_eng.pdf" target="_blank" rel="noreferrer noopener">U.N. report</a>&nbsp;earlier this year claiming the Jalisco New Generation and Sinaloa cartels were increasingly looking to bitcoin as a laundering mechanism. That said, some experts believe Mexican gangs will likely continue to move cash proceeds across the border in bulk to stop American cops following their money. “On a larger scale, [crypto laundering] is still completely dwarfed by cash and other means just because of the volume of money involved,” Prince explained.



This story was first reported in my newsletter, The Wiretap. With exclusives on surveillance and cybercrime, as well as all the security and privacy you need, it comes out free every week. Sign up <a href="https://www.forbes.com/newsletter/thewiretap/">here</a>.



By Thomas Brewster, Forbes Staff

Daily Life In Edmonton During The Covid-19 Pandemic

Global Drug Conspiracy Used Binance To Launder Millions In Crypto, DEA Investigation Finds￼

In its&nbsp;<a href="https://www.forbes.com/sites/mitchellmartin/2022/11/28/blockfi-seeks-bankruptcy-protection-points-out-obligations-owed-by-ftx/?sh=226d4cfc2560">bankruptcy filing</a>&nbsp;last week, New Jersey-based BlockFi attempted to paint itself as a responsible lender hit by plummeting crypto prices and the&nbsp;<a href="https://www.forbes.com/sites/davidjeans/2022/11/12/the-devil-in-nerds-clothes-how-sam-bankman-frieds-cult-of-genius-fooled-everyone/?sh=11f555e1d269">collapse of crypto brokerage FTX</a>&nbsp;and its affiliated trading firm,&nbsp;<a href="https://www.forbes.com/sites/jeffkauflin/2022/11/19/how-did-sam-bankman-frieds-alameda-research-lose-so-much-money/?sh=18dec10444c9">Alameda</a>. But a closer look at the company’s history reveals that its vulnerabilities likely began much earlier with missteps in risk management, including loosened lending standards, a highly concentrated pool of borrowers and unsustainable trading activity.



Like so many digital asset companies, crypto lender BlockFi let itself get swept up in the 2021 crypto frenzy. As bitcoin’s price rose sharply that year, BlockFi started expanding aggressively to meet investor demand. As of March 2021, BlockFi’s assets under management swelled to more than $15 billion, up from $1 billion the year before. In the first six months of 2021, it hired an average of more than 75 people per month, according to LinkedIn data, as its valuation hit $4.25 billion.



While the company regularly <a href="https://blockfi.com/in-depth-look-at-blockfis-risk-management" target="_blank" rel="noreferrer noopener">touted</a> a sophisticated risk management team, current and former employees indicate in interviews that risk professionals were dismissed by executives preoccupied with delivering growth to investors. As early as 2020, employees were discouraged from describing risks in written internal communications to avoid liability, a former employee states. This picture stands in contrast to last week’s <a href="https://restructuring.ra.kroll.com/blockfi/Home-DocketInfo" target="_blank" rel="noreferrer noopener">bankruptcy filing</a>, in which the company states that “since its founding, BlockFi has been focused on providing best-in-class financial services and offering (sometimes creating) industry-leading protections.”



BlockFi positioned itself as a bank-like institution that was a&nbsp;<a href="https://blockfi.com/in-depth-look-at-blockfis-risk-management" target="_blank" rel="noreferrer noopener">safe place</a>for retail investors to store their funds and earn interest, but the company used retail deposits for questionable lending and unsustainable trading activities, says Ram Ahluwalia, CEO of digital asset investment advisor Lumida. “What they were really doing, these retail depositors, is they were financing a hedge fund,” says Ahluwalia, who worked in credit risk analysis and management before crypto.



Until August 2021, BlockFi advertised that loans were typically over-collateralized. But large potential borrowers were often unwilling to meet those requirements, a <a href="https://www.sec.gov/litigation/admin/2022/33-11029.pdf" target="_blank" rel="noreferrer noopener">cease and desist order</a> brought by the Securities and Exchange Commission against BlockFi in February states. The availability of <a href="https://cases.stretto.com/public/x193/11753/PLEADINGS/1175310172280000000106.pdf" target="_blank" rel="noreferrer noopener">uncollateralized capital</a> from competing companies like Voyager created stiff competition in the lending field.



Under pressure to continue growing and delivering yields, BlockFi began lending to these parties with less collateral than publicly stated without informing customers on the amount of risk involved with interest accounts, according to the SEC order which resulted in a $100 million fine for the company. As a result, BlockFi paused access to its interest accounts in the U.S. (The company agreed to entry of the cease and desist order and payment of the fine without admitting or denying the SEC’s findings.)



“From inception, BlockFi worked to constantly evolve and refine all corporate governance practices, including bringing in specialized and seasoned risk expertise as the firm grew,” a BlockFi representative said in response to Forbes’ request for comment.



In addition to lowering its collateral requirements, BlockFi’s due diligence process had flaws, former borrowers say. Available credit for borrowers was decided based on their assets, but BlockFi and other lenders failed to investigate both the size and quality of potential borrowers’ holdings. Like&nbsp;<a href="https://cases.stretto.com/public/x193/11753/PLEADINGS/1175310172280000000106.pdf" target="_blank" rel="noreferrer noopener">Voyager</a>&nbsp;and other crypto lenders, BlockFi accepted unaudited balance sheets from hedge funds and proprietary trading firms former borrowers say, leaving room for manipulation on the borrower side.



In the due diligence process, lenders like BlockFi and Voyager did not examine whether borrowers’ balance sheet assets were denominated in dollars or less liquid tokens like FTX-issued FTT. When asked to address detailed questions about these failings, a BlockFi representative responded with a statement that: “BlockFi’s institutional counterparties undergo a full due diligence and underwriting analysis which includes a review of their operation and financial statements, with focus on leverage and liquidity.”



The revelation that Alameda’s&nbsp;<a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/" target="_blank" rel="noreferrer noopener">balance sheet was mostly FTT tokens</a>&nbsp;was the news that set off the unraveling of both Alameda and FTX and triggered contagion effects across the industry. In early November, Alameda defaulted on $680 million in loan obligations to BlockFi, according to the&nbsp;<a href="https://restructuring.ra.kroll.com/blockfi/" target="_blank" rel="noreferrer noopener">bankruptcy filing</a>.



An internal team at BlockFi also raised concerns that the borrower pool was too concentrated among a pool of crypto whales, including mega hedge funds Three Arrows Capital and Alameda, another former employee states. Management responded that the loans were collateralized, according to the employee.



In addition to lending to institutions, a large revenue driver for BlockFi before this year was a popular arbitrage trade leveraging an investment vehicle called Grayscale Bitcoin<a href="https://www.forbes.com/digital-assets/assets/bitcoin-btc/" target="_blank" rel="noreferrer noopener">BTC</a>&nbsp;<a href="https://www.forbes.com/digital-assets/assets/bitcoin-btc/">-1.5%</a>&nbsp;Trust, which is designed to offer investors bitcoin exposure on traditional markets. For years, GBTC traded at a premium relative to the value of underlying bitcoin. Investment firm Grayscale let institutional investors contribute bitcoin to the trust in return for shares. The shares could eventually be sold to profit from the difference between their price and bitcoin. At one point, BlockFi&nbsp;<a href="https://www.sec.gov/Archives/edgar/data/1588489/000149315220019975/sc13g.htm" target="_blank" rel="noreferrer noopener">held over 5%</a>&nbsp;of the trust&#8217;s shares.



That strategy began to unravel in February 2021 when GBTC shares began selling at a discount, while a portion of BlockFi’s holdings were locked up by an SEC rule that prohibited holders from selling their GBTC until six months after their purchase. This turned the profitable arbitrage into a money loser, leading to big losses for BlockFi.



The next month, BlockFi began cutting yields on interest-bearing accounts holding bitcoin, reducing the highest promised interest rate from 6% to 4% between&nbsp;<a href="https://blockfi.com/our-btc-and-eth-rates-are-changing-and-heres-why" target="_blank" rel="noreferrer noopener">March</a>&nbsp;and&nbsp;<a href="https://blockfi.com/blockfi-interest-account-bia-rates-are-changing-based-on-latest-market" target="_blank" rel="noreferrer noopener">June</a>&nbsp;of 2021. Shortly after, the company&nbsp;<a href="https://blockfi.com/blockfi-appoints-yuri-mushkin-as-chief-risk-officer" target="_blank" rel="noreferrer noopener">replaced</a>&nbsp;Bank of America<a href="https://www.forbes.com/companies/bank-of-america" target="_blank" rel="noreferrer noopener">BAC</a>&nbsp;<a href="https://www.forbes.com/companies/bank-of-america">-0.2%</a>&nbsp;veteran Rene Van Kesteren as chief risk officer with another traditional finance hire, Yuri Mushkin. By July 2022, BlockFi CEO Zac Prince stated the company&nbsp;<a href="https://twitter.com/BlockFiZac/status/1546609720051499016?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1546609720051499016%7Ctwgr%5Ecdd07721b76cbe707c93226515d631ee8763b5ad%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fblockworks.co%2Fnews%2Fblockfi-winds-down-loans-backed-by-gbtc-stock-ceo-says" target="_blank" rel="noreferrer noopener">no longer held</a>&nbsp;GBTC shares and was unwinding loans where shares of the fund were held as collateral.



In BlockFi’s bankruptcy filing and in <a href="https://twitter.com/BlockFiZac/status/1546492678698844163" target="_blank" rel="noreferrer noopener">public statements</a> made by its CEO, Zac Prince, the company points to its survival through the collapse of the Terra/Luna ecosystem and subsequent shuttering of Three Arrows Capital as evidence of strong management. But that endurance four months ago was made possible through a $400 million credit line from now-defunct FTX, which allowed the firm to meet panicked withdrawal requests from depositors. When FTX folded in early November, BlockFi lost its lending back stop and could no longer meet fresh waves of withdrawal requests.



By Emily Mason, Forbes Staff

BlockFi Photo Illustrations

BlockFi Employees Warned Of Credit Risks, But Say Executives Dismissed Them

Like stock certificates sprinkled with pixie dust, inflated exchange tokens were at the core of FTX’s spectacular collapse. They are still in widespread use at major cryptocurrency exchanges around the world. Will they be crypto’s undoing?



In2017, cryptocurrency exchange Binance created the first of a new kind of blockchain-minted digital asset: BNB coin, designed to reward customer behavior such as trading or referring friends to its own platform. “A model for building a scalable, and impactful cryptocurrency business,” heralded CoinDesk editor Pete Rizzo in 2019, after Binance moved the coin to its own proprietary blockchain. “Unbelievable brilliance.”



Today, the only unbelievable thing about the whole cloth of crypto inventions known as exchange tokens, like BNB, is that they have inflated to tens of billions of dollars in value and in large part have become the foundation upon which the fast-growing digital-assets markets rest.



The weakest link in former billionaire Sam Bankman-Fried’s crypto empire was FTX’s own exchange token, which traded under the symbol FTT. According to Reuters, Bankman-Fried had lent his trading company, Alameda,&nbsp;<a href="https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/" target="_blank" rel="noreferrer noopener">billions of dollars</a>&nbsp;in FTX customer funds, collateralized by these FTT tokens, which were essentially invented as a way to offer trading discounts and other perks.



“The way that FTT works,” said Bankman-Fried in an August 2022 interview with&nbsp;Forbes, “It is not that you get free FTT for doing things. The way to think about it is that you get free shit for having FTT. So, there&#8217;s a bunch of doo-hickeys.”



At the peak in 2021 FTT had a market value of $9.6 billion, but unlike a common stock, which represents legal ownership in the assets of a corporation, FTT does not represent any equity ownership in the FTX company. If FTT had any intrinsic value, it was in the form of discounts that FTX customers using these tokens could get trading on the exchange–as much as 60% for active traders. You can think of these exchange tokens as being akin to loyalty or reward points you might get as a frequent customer of Starbucks or the UnitedMiles by flying on that airline. They have value, but it&#8217;s unlikely that a bank would allow you to use them as collateral if you wanted to purchase a home.&nbsp;



However, in the highly speculative and often bizarre world of digital assets, these loyalty tokens trade on numerous crypto exchanges just as stocks do on the New York Stock Exchange, and FTX founder Sam Bankman-Fried reportedly used them as collateral for the loans his company made. Up until a week ago FTT traded at $26 and had a market capitalization of $3.5 billion. But after Bankman-Fried’s rival Changpeng Zhao, Binance’s billionaire founder, went on Twitter to say he was planning to sell over $500 million of FTT, it sparked the crypto equivalent of a bank run. Today FTT sells for $2.70, and given FTX’s recent bankruptcy filing, it is likely headed to zero.



But the story of exchange tokens in cryptoland is far from over. Forbes counts more than 16 global crypto and DeFi (decentralized finance) exchanges currently using these tokens for a combined market value of no less than $62 billion. 



In fact, so-called exchange tokens are an important underpinning to the crypto exchange ecosystem because they are effective in creating customer loyalty–especially when token prices are rising. Virtually all such tokens offer holders exchange-specific perks such as trading fee discounts, preferential margin loan terms, enhanced rewards for staking (lending) and exchange-branded cashback Visa cards. Exchange tokens are also awarded to customers that refer new traders to a platform, in a system similar to multi-level marketing organizations like Amway. Exchange tokens function as the fuel for crypto’s self-fulfilling bubbles.



Binance–the largest crypto exchange in the world–has its own token, BNB, which by itself has a market capitalization of $45.9 billion, though it does not represent any equity in Changpeng Zhao’s company nor has it been registered as a security with the U.S. SEC.&nbsp;



Anyone who opens an account on Binance and starts trading can buy or earn these BNB tokens, which offer 25% discounts on spot and margin transaction fees and 10% on futures. If you refer friends, you can get up to 40% commission every time they make a trade on Binance. Also, because Binance has created its own blockchain that mints BNB coins, you can use BNB to pay for goods and services, book airfare and hotels on sites like Travala for instance, participate in exclusive token sales and even earn free tokens by completing surveys and tasks. You can also put BNB to use by staking, earn a flexible percentage yield by depositing it on BNB Chain-based projects and apply for crypto loans. Notably, these digital assets are also essential for anyone who want to use Binance’s decentralized exchange (DEX), which theoretically can’t be shut down by U.S. regulators.



Unlike bitcoin, which is mined every ten minutes, all of the 350 million FTT tokens that would ever exist were created in what is known as a pre-mine. “There will never be any more minted,” said Bankman-Fried recently. In fact, over a period of about three months starting around June of 2019 almost all of FTT’s premined tokens were sold prior to getting listed on crypto exchanges. “Effectively, all of the FTT tokens were owned by a collection of people and entities,” said Bankman-Fried.



In order to create scarcity and essentially bolster the value of its exchange tokens, FTX and Binance conduct what are known as token burns. Periodically both exchanges send tokens to irretrievable addresses reducing the float, similarly to a share buyback, and thus increasing the value of the exchange tokens outstanding. Since 2019 FTX has burned 21 million FTT tokens. In total, Binance has burned more than 42 million BNB, which would be worth $11.6 billion at today’s prices. CZ has said Binance doesn’t borrow money and has never used BNB as collateral on loans. He recently began advocating that exchanges undergo a “proof” of funds.&nbsp;



In terms of governance, exchange tokens, like loyalty reward programs, are completely under the control of the entity that issues or redeems them, even if they profess to stick to pre-arranged schedules for issuance or burning. DeFi tokens, by contrast, claim to offer holders the ability to propose and vote on platform changes. But in reality, many large DeFi platforms concentrate governance in the hands of big investors and founding teams. Additionally, just as FTT did not give holders stakes in FTX, purchasing a DeFi token does not necessarily convey ownership rights into the underlying platform.&nbsp;



The table below offers details on some 16 different cryptocurrency and DeFi-platform exchange tokens representing more than $60 billion in market value. Conspicuously absent are Coinbase and Kraken, which are U.S.-based and have avoided issuing exchange tokens, presumably because they would likely be deemed securities by the SEC. All of the tokens listed trade on exchanges daily like stocks–most of them have plummeted in value in the last year—but not a single one offers any ownership in the companies that they are affiliated with. Buyer beware.



<h4 class="wp-block-heading" id="h-token-values">TOKEN VALUES</h4>



<h4 class="wp-block-heading" id="h-the-16-crypto-and-defi-exchanges-below-created-exchange-tokens-to-attract-and-retain-customers-though-they-trade-like-stocks-and-have-a-value-of-over-60-billion-none-represent-ownership-in-their-affiliated-platforms">The 16 crypto and DeFi exchanges below created exchange tokens to attract and retain customers. Though they trade like stocks and have a value of over $60 billion, none represent ownership in their affiliated platforms.</h4>



<figure class="wp-block-table"><table><tbody><tr><td>Exchange </td><td>Token Symbol</td><td>Headquarters</td><td>MARKET CAPITALIZATION ($ million)</td><td>12-MONTH PRICE CHANGE </td><td> TOKEN UTILITY AND PERKS </td></tr><tr><td>Binance</td><td>BNB</td><td>none, &#8220;remote first&#8221; </td><td>$45,977 </td><td>-55% </td><td> Trading discounts, access to earning higher rewards and token sales, VISA card rewards from VISA merchant network, better loan terms </td></tr><tr><td>OKX</td><td>OKO</td><td>Seychelles</td><td>$4,651 </td><td>-31% </td><td> Trading discoounts, access to token sales, payment from crypto to network of merchants </td></tr><tr><td>Uniswap **</td><td>UNI</td><td>New York</td><td>$4,188 </td><td>-78% </td><td> UNI tokens govern a platform that rewards members through revenue sharing of fees earned. </td></tr><tr><td>Crypto.com </td><td>CRO</td><td>Singapore</td><td>$2,024 </td><td>-78% </td><td> Trading discounts, Crypto.com VISA rewards on purchases, higher yield on staking, revenue sharing, access to buy rare collectible NFTs </td></tr><tr><td>Tokenize Xchange</td><td>TKX</td><td>Singapore</td><td>$803 </td><td>-16% </td><td> Trading discounts and possibly free trading when combined with VIP program, double earning program access, zero fee withdrawals </td></tr><tr><td>Huobi</td><td>HT</td><td>Seychelles</td><td>$699 </td><td>-47% </td><td> Trading discounts of up to 65% when combined with VIP program, HT staking yield of 2.5%, network revenue sharing </td></tr><tr><td>Kucoin</td><td>KCS</td><td>Seychelles</td><td>$693 </td><td>-68% </td><td> Trading discounts, KuCoin VISA rewards on purchases, higher yield on staking, earn KCS based on network activity </td></tr><tr><td>Whitebit</td><td>WBT</td><td>Lithuana</td><td>$682 </td><td>na</td><td> Trading discounts up to zero cost trading with higher WBT balances </td></tr><tr><td>PancakeSwap **</td><td>CAKE</td><td>Japan</td><td>$590 </td><td>-78% </td><td> Earn CAKE for free with high interest rates, stake CAKE and earn free tokens, access to win collectible NFTs </td></tr><tr><td>BTSE</td><td>BTSE</td><td>British Virgin Islands</td><td>$562 </td><td>-41% </td><td> Trading discounts, referral bonus boost, chances to earn bonuses, access to select asset management offers </td></tr><tr><td>Gate.io</td><td>GT</td><td>none, 100% remote</td><td>$538 </td><td>-52% </td><td> Zero trading fee, access to exclusive offers, voting activities, liquidity mining benefits </td></tr><tr><td>Synthetix Network **</td><td>SNX</td><td>Australia</td><td>$392 </td><td>-83% </td><td> SNX staking generates rewards through the network&#8217;s &#8220;inflationary monetary policy&#8221; and through transactions in staked US dollars (sUSD). </td></tr><tr><td>FTX</td><td>FTT</td><td>Bahamas</td><td>$262 </td><td>-97% </td><td> Trading discounts, staking benefits include higher referral rates and revenue sharing, earn and burn FTT weekly </td></tr><tr><td>MEXC Global</td><td>MX</td><td>Seychelles</td><td>$87 </td><td>-69% </td><td> Trading discount, MX burn program participation, referral rewards, access to M-Day events and new MEXC launchpad projects. </td></tr><tr><td>Bidget</td><td>BGB</td><td>Singapore</td><td>$27 </td><td>na</td><td> Trading discount, earn KOL partnership rewards </td></tr><tr><td>BitMart</td><td>BMX</td><td>Grand Cayman</td><td>$16</td><td>-76% </td><td>Trading discount, deflationary token</td></tr></tbody></table><figcaption>*A decentralized exchange. Source: Coinmarketcap, CoinGecko, Forbes, exchange sites.</figcaption></figure>



By Nina Bambysheva, Javier Paz, Michael del Castillo and Steven Ehrlich, Forbes Staff

The Looming $62 Billion Crypto Contagion

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



The Royal Bahamas Police Force is investigating Sam Bankman-Fried’s now-bankrupt cryptocurrency exchange FTX for possible criminal misconduct, the department said in a statement Sunday, marking the latest development in the crypto giant’s implosion and Bankman-Fried’s fall from grace.



<h2 class="wp-block-heading">KEY FACTS</h2>



Financial investigators from the Royal Bahamas Police Force in Nassau are working with the Bahamas Securities Commission to probe FTX Digital Markets Ltd., which is based in the island country, RBPF spokesperson Chrislyn Skippings said in&nbsp;<a href="https://twitter.com/RBPFPolice/status/1591864528291221504" target="_blank" rel="noreferrer noopener">a statement.&nbsp;</a>



The announcement comes after the Securities Commission of the Bahamas suspended FTX’s registration and froze its assets on Thursday in an effort to “preserve assets and stabilize the company,” the commission said in <a href="https://twitter.com/ewnewsbahamas/status/1590840936946634753" target="_blank" rel="noreferrer noopener">a statement</a>.



While it’s unclear what specific possible crimes the commission is probing, the commission said previously it “is aware of public statements ​​suggesting that (FTX) clients’ assets were mishandled, mismanaged and/or transferred to (Bankman-Fried’s crypto trading firm) Alameda Research,” according to a statement that noted the actions would be “potentially unlawful.”



The commission last week also denied FTX’s suggestion that it ordered the company to allow users to withdraw funds,&nbsp;<a href="https://twitter.com/FTX_Official/status/1590783569471115264?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1590783569471115264%7Ctwgr%5E4a324ad9dce5a0ef3346e41048f5f4789aa753cb%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fwww.coindesk.com%2Fpolicy%2F2022%2F11%2F13%2Fbahamas-securities-regulator-says-it-didnt-order-ftx-to-reopen-local-withdrawals%2F" target="_blank" rel="noreferrer noopener">tweeting</a>&nbsp;that it “does not condone the preferential treatment of any investor or client of FTX Digital Markets Ltd.”



Forbes has reached out to FTX for comment.



<h2 class="wp-block-heading">WHAT TO WATCH FOR</h2>



The U.S. Securities and Exchange Commission and Justice Department are also investigating FTX, including whether the company should have registered some of its securities with the SEC before selling them to investors, <a href="https://www.wsj.com/articles/sec-investigates-crypto-platform-ftx-11668020379" target="_blank" rel="noreferrer noopener">the Wall Street Journal reported.</a>



<h2 class="wp-block-heading">KEY BACKGROUND</h2>



Bankman-Fried resigned as CEO of FTX last week and the company—along with over 100 affiliated entities—commenced Chapter 11 bankruptcy proceedings, in the wake of a liquidity crisis that led to the collapse of one of the world’s largest crypto exchanges. Bankman-Fried said the company saw about $5 billion of withdrawals in one day after Changpeng Zhao, CEO of rival Binance, announced that his firm would sell all of its holdings in the FTX crypto token. Binance’s decision came days after&nbsp;<a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/" target="_blank" rel="noreferrer noopener">Coindesk reported</a>that Alameda held a large share of its assets in a token issued by FTX (Bankman-Fried initially called the concerns about FTX’s financial health “unfounded rumors”). Multiple news outlets&nbsp;<a href="https://www.wsj.com/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732" target="_blank" rel="noreferrer noopener">later reported</a>&nbsp;<a href="https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/#:~:text=The%20exchange's%20founder%20Sam%20Bankman,amount%20at%20about%20%241.7%20billion." target="_blank" rel="noreferrer noopener">that FTX</a>&nbsp;<a href="https://www.nytimes.com/2022/11/10/technology/ftx-crypto-exchange.html" target="_blank" rel="noreferrer noopener">lent billions</a>&nbsp;of dollars to Alameda, including some customer funds. The price of FTX’s token fell 86% in three days following the withdrawals and sent bitcoin, ethereum and shares of exchange Coinbase tumbling 20% or more. Binance&nbsp;<a href="https://www.forbes.com/sites/ninabambysheva/2022/11/08/binance-intends-to-acquire-ftx/?sh=15d98b491a93">briefly moved to acquire</a>&nbsp;FTX on Tuesday to “help cover the liquidity crunch,” but the company&nbsp;<a href="https://www.forbes.com/sites/dereksaul/2022/11/09/binance-reportedly-bails-on-ftx-acquisition---heres-what-led-to-the-ftx-crypto-crash/?sh=28493f4d3ed2">later pulled out</a>&nbsp;of the agreement, citing due diligence and “news reports regarding mishandled customer funds and alleged US agency investigations,” setting the stage for FTX to declare bankruptcy.



<h2 class="wp-block-heading">BIG NUMBER</h2>



$32 billion. That was FTX’s valuation at the end of last year. Bankman-Fried, who was worth $26 billion at the time, has admitted he is no longer a billionaire in the wake of the company’s collapse.



<h2 class="wp-block-heading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/chasewithorn/2022/11/09/whats-sam-bankman-fried-worth-now-not-clear-but-not-a-billionaire-the-former-crypto-wunderkind-admits-to-forbes/?sh=1325c10d3b0b">Sam Bankman-Fried Is No Longer A Billionaire, Even He Concedes</a>(Forbes)



<a href="https://www.forbes.com/sites/jonathanponciano/2022/11/11/ftx-files-for-bankruptcy-former-billionaire-sam-bankman-fried-resigns-as-ceo/?sh=694a2b2d231d">FTX Files For Bankruptcy—Former Billionaire Sam Bankman-Fried Resigns As CEO</a> (Forbes)



By Sara Dorn, Forbes Staff

FTX Crypto Bankruptcy

FTX Faces Criminal Investigation In Bahamas After Crypto Exchange Collapses, Police Say

No one is set to lose more from FTX’s implosion than Sam Bankman-Fried, the crypto wunderkind who founded the exchange and then drove it into the ground this week. His net worth, once as high as $26.5 billion, has plummeted to less than a billion dollars–one of the fastest falls from the billionaires ranks ever. FTX users and employees may be in for big losses too, with Bankman-Fried now&nbsp;<a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-09-2022/card/ftx-needs-8-billion-bankman-fried-tells-investors-2RSa5oqZyZZ5YrPLuZuL" target="_blank" rel="noreferrer noopener">trying to cobble together emergency funding</a>&nbsp;to cover a shortfall of up to $8 billion as customers demand their money back. “I can&#8217;t make any promises,” he&nbsp;<a href="https://twitter.com/SBF_FTX/status/1590709181077934081" target="_blank" rel="noreferrer noopener">tweeted Thursday</a>. “But I&#8217;m going to try.”



Then there are FTX’s investors.



As the crypto exchange ballooned in size, it became a huge draw for venture capitalists eager to get in on the Bitcoin boom. In June 2021, FTX raised $1 billion at an $18 billion valuation from venture investors such as Paradigm, SoftBank and Sequoia Capital. Three months later, FTX brought in a $421 million haul, pushing its valuation to $25 billion, from investors like Singapore-government owned investment firm Temasek, Tiger Global Management and the Ontario Teachers’ Pension Plan. By January of this year, crypto prices were on the decline, but FTX charged ahead. Investors, many of whom had also pumped money into the earlier rounds, put another $400 million into FTX–at a $32 billion valuation.



<h2 class="wp-block-heading" id="h-temasek">TEMASEK&nbsp;</h2>



<h3 class="wp-block-heading" id="h-stake-in-ftx-1">Stake in FTX: 1%</h3>



<h3 class="wp-block-heading" id="h-est-amount-invested-205-million">Est. amount invested: $205 million</h3>



<h3 class="wp-block-heading" id="h-value-at-january-2022-peak-320-million">Value at January 2022 peak: $320 million</h3>



An investment company owned by the government of Singapore, Temasek is the second-largest outside investor on the capitalization table, with 7 million shares. The $297 billion (assets) business, which owns big stakes in Singapore’s DBS Group and Singapore Airlines, invested in all three of FTX’s major funding rounds. With its $320 million stake on the brink of being worthless, a Temasek spokesperson&nbsp;<a href="https://www.reuters.com/markets/currencies/cryptos-attempt-steady-binance-ftx-deal-chills-market-2022-11-09/" target="_blank" rel="noreferrer noopener">told&nbsp;Reuters</a>&nbsp;on Wednesday that they were “aware of the developments” and were “engaging FTX in our capacity as shareholder.&#8221;



<h2 class="wp-block-heading" id="h-paradigm">PARADIGM</h2>



<h3 class="wp-block-heading" id="h-stake-in-ftx-1-1">Stake in FTX: 1%</h3>



<h3 class="wp-block-heading" id="h-est-amount-invested-215-million">Est. amount invested: $215 million</h3>



<h3 class="wp-block-heading" id="h-value-at-january-2022-peak-315-million">Value at January 2022 peak: $315 million</h3>



Paradigm, an investment firm “focused on supporting the crypto/Web3 companies and protocols of tomorrow,” invested in the exchange’s series B and C rounds and owned nearly 7 million shares of FTX as of August. “There&#8217;s a bright future ahead for Sam and FTX,” Paradigm cofounder Matt Huang said in July 2021, “and Paradigm is excited to be a part of it.&#8221;



According to&nbsp;The Information, Alameda Research also invested at least $20 million in Paradigm.



<h2 class="wp-block-heading" id="h-ontario-teachers-pension-plan">ONTARIO TEACHERS’ PENSION PLAN</h2>



<h3 class="wp-block-heading" id="h-stake-in-ftx-0-4">Stake in FTX: 0.4%</h3>



<h3 class="wp-block-heading" id="h-est-amount-invested-80-million">Est. amount invested: $80 million</h3>



<h3 class="wp-block-heading" id="h-value-at-january-2022-peak-125-million">Value at January 2022 peak: $125 million</h3>



The Ontario Teachers&#8217; Pension Plan, which manages the retirement funds of 333,000 teachers in the Canadian province,&nbsp;<a href="https://www.otpp.com/en-ca/about-us/news-and-insights/2022/ontario-teachers--statement-on-ftx/" target="_blank" rel="noreferrer noopener">invested a total of $95 million</a>&nbsp;between FTX and FTX U.S. in late 2021 and early 2022. The FTX portion of that investment alone was worth an estimated $130 million following FTX’s series C round–before the crypto winter and current crisis. “While there is uncertainty about the future of FTX,” Ontario Teachers’&nbsp;<a href="https://www.otpp.com/en-ca/about-us/news-and-insights/2022/ontario-teachers--statement-on-ftx/" target="_blank" rel="noreferrer noopener">wrote in a statement</a>, “any financial loss on this investment will have limited impact on the plan, given this investment represents less than 0.05% of our total net assets.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<abbr>W</abbr>hile these are the main shareholders identified on the capitalization table obtained by&nbsp;Forbes, there are other big investors not mentioned who have likely lost big. The rest of FTX’s series B investors, who bought into the $1 billion round in June 2021, own another 3.5% of the exchange. These investors include entities tied to billionaires Paul Tudor Jones, Daniel Loeb and Israel Englander, plus firms like Tiger Global Management and SoftBank–both of which also got in on FTX’s series C round in January, likely making them substantial shareholders as well. Investors from that round, not including Temasek and Paradigm, own nearly 1% of FTX, according to the capitalization table, putting their paper losses north of $270 million. Big numbers, but drops in the bucket for these funds, which often have so much capital they can afford to put large sums into scores of risky unicorns, so long as at least one or two pans out.



At least two famous faces who inked endorsement deals with FTX are poised to lose, too. NFL legend Tom Brady and fashion model Gisele Bundchen owned 0.15% and 0.09% of FTX as of June 2021, respectively, according to an earlier capitalization table also shared with&nbsp;Forbes&nbsp;by Bankman-Fried. Accounting for assumed dilution in the subsequent funding rounds,&nbsp;Forbes&nbsp;estimates their ownership in FTX at 0.14% and 0.8%, respectively. It’s unclear how much the ex-couple invested for their shares, but Brady’s estimated stake would have been worth $45 million, and Gisele’s worth $25 million, before crypto prices fell and Bankman-Fried&nbsp;<a href="https://twitter.com/TomBrady/status/1543965253523881986?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1543965253523881986%7Ctwgr%5Ed8965981b6411b69a1f6de7489393a7883dd52cc%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fnypost.com%2F2022%2F11%2F09%2Ftom-brady-gisele-bundchen-now-caught-up-in-ftx-collapse%2F" target="_blank" rel="noreferrer noopener">took a flamethrower to their investment</a>.



Among the most impacted: FTX employees.&nbsp;According to the capitalization table, the company’s option pool held 20,858,124 shares, or about 3% of FTX, as of August. In January, FTX employees owned as much as $950 million worth of stock. Now it’s likely worthless. Will they get that money back? Bankman-Fried has made his priorities clear: Users first, according to&nbsp;<a href="https://twitter.com/SBF_FTX/status/1590709166515310593" target="_blank" rel="noreferrer noopener">a series of tweets he posted Thursday</a>, then he’ll focus on investors–“old and new”–then Bankman-Fried says he’ll take care of workers. Well, those who “have fought for what&#8217;s right for their career,”&nbsp;<a href="https://twitter.com/SBF_FTX/status/1590709195892195329" target="_blank" rel="noreferrer noopener">he clarified</a>, “and who weren&#8217;t responsible for any of the f*ck ups.”



By Chase Peterson-Withorn, Forbes Staff

Key Speakers At The Bloomberg Crypto Summit

Exclusive: These Investors Stand To Lose The Most From FTX’s Implosion

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



A textless meme of a dog in a T-shirt tweeted by the world’s wealthiest man Elon Musk sent one of the world’s largest cryptocurrencies up 12% Tuesday, the latest instance of tongue-in-cheek social media activity causing big money moves.



<h2 class="wp-block-heading">KEY FACTS</h2>



Musk’s&nbsp;<a href="https://twitter.com/elonmusk/status/1587297730631696384?s=20&amp;t=LyxmZux9A7OErRktrr3ddw" target="_blank" rel="noreferrer noopener">tweet</a>&nbsp;of a Shiba Inu adorned with a Twitter logo instantly went viral, picking up nearly 600,000 likes.



The image is an apparent reference to&nbsp;<a href="https://techcrunch.com/2022/09/29/elon-musk-texts-discovery-twitter/" target="_blank" rel="noreferrer noopener">reports</a>&nbsp;Musk will heavily incorporate dogecoin, a coin with a Shiba Inu’s face on it, on Twitter.



Dogecoin rose to a six-month high of $0.14, and is up a whopping 131% over the last month, according to&nbsp;<a href="https://www.forbes.com/digital-assets/traded-assets/">Forbes’ tracker of digital assets</a>.



Also gaining was the cryptocurrency Shiba Inu, which rose 8% Tuesday.



Outside from the canine tokens, the crypto market broadly rose, with bitcoin and Ethereum gaining 2.6% and 5%, respectively.



<h2 class="wp-block-heading">BIG NUMBER</h2>



$10.2 billion. That’s how much in market capitalization dogecoin has gained since October 4, the day Musk’s intent to close the Twitter deal went public. Its $19.1 billion market cap is roughly the same as Hewlett Packard.



<h2 class="wp-block-heading">KEY BACKGROUND</h2>



Dogecoin briefly reached a market cap of about $70 billion last year when it peaked near $0.70 before quickly losing its luster, falling to as low as $0.05. Much of dogecoin’s surge came as Musk relentlessly touted the coin. This year has been bleak for crypto, with bitcoin down 57% year-to-date, compared to a 19% loss for the S&amp;P 500. Doge’s rise and fall mirrored that of several other meme assets, including stocks like AMC, Bed Bath &amp; Beyond and GameStop.&nbsp;



<h2 class="wp-block-heading">TANGENT</h2>



The potential dogecoin adoption is one of many changes to his new social network teased by Musk on his Twitter account, with the billionaire also putting out feelers for the&nbsp;<a href="https://www.forbes.com/sites/dereksaul/2022/10/31/vine-20-twitter-reportedly-working-to-bring-back-video-service-after-musk-poll/?sh=1a725f763f42">return of</a>&nbsp;the short-form video service Vine and a&nbsp;<a href="https://www.forbes.com/sites/siladityaray/2022/10/31/a-verified-badge-on-twitter-may-cost-users-20-a-month-report-says/">monthly fee</a>&nbsp;for users to retain their verified badges.



<h2 class="wp-block-heading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/dereksaul/2022/10/28/crypto-markets-gain-nearly-100-billion-after-elon-musks-twitter-deal-boosts-dogecoin/?sh=3e486d062540">Crypto Markets Gain Nearly $100 Billion After Elon Musk&#8217;s Twitter Deal Boosts Dogecoin</a>&nbsp;(Forbes)



By Derek Saul, Forbes Staff

File: Crypto Losses Near $700 Billion In Worst Week Since Bubble Burst

Musk Meme Fuels $2 Billion Gain For Dogecoin￼

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Crypto markets tumbled Thursday morning in anticipation of new federal <a href="https://www.forbes.com/sites/jonathanponciano/2022/10/13/inflation-spiked-worse-than-expected-82-in-september/?sh=7e6bee7a2712">data</a>, which revealed consumer prices rose 8.2% over the past 12 months—continuing crypto’s fall as investors fear rising inflation and a new round of potential interest rate hikes could tip the economy into a recession and a dreaded “crypto winter.”



<h2 class="wp-block-heading">KEY FACTS</h2>



<a href="https://www.forbes.com/digital-assets/assets/bitcoin-btc/?sh=74133434357f">Bitcoin</a>, considered the “<a href="https://www.ecosia.org/search?q=Goldman%20Sachs%20Bitcoin%20digital%20gold&amp;addon=firefox&amp;addonversion=4.1.0&amp;method=topbar" target="_blank" rel="noreferrer noopener">gold standard</a>” in the crypto market, fell 3.91% on Thursday, to $18,404, continuing a steady decline from a peak of $63,599 last November, and reaching its lowest point since June.



The second-largest cryptocurrency, <a href="https://www.forbes.com/digital-assets/assets/ethereum-eth/?sh=6480994316a8">Ethereum</a>, also dropped 6.53%, to $1,221.40 in the wake of the Labor Department data, which also showed overall prices rose 0.4% over the past month, over economists’ predictions of 0.3%.



Billionaire Elon Musk favorite&nbsp;<a href="https://www.forbes.com/digital-assets/assets/dogecoin-doge/?sh=48d216833ab3">Dogecoin</a>, meanwhile, fell 5.62%, to $.057.



The drop comes one month after bitcoin fell 9.35%, to $20,304—its largest drop since June—following the Labor Department’s August inflation report, which showed an 8.3% 12-month rise in consumer prices.



OANDA senior market analyst Craig Erlam said crypto’s decline is part of a recent slide, even as other “high-risk assets,” including tech stocks, are expected to <a href="https://www.forbes.com/sites/jonathanponciano/2022/10/05/stock-market-poised-for-bigger-losses-as-economy-enters-danger-zone-morgan-stanley-warns/?sh=2343532321b4">rally</a>—although Morgan Stanley strategist Michael Wilson said those gains might not last long amid economic uncertainty from Russia’s ongoing war in Ukraine and economic volatility weakening the dollar.



<h2 class="wp-block-heading">KEY BACKGROUND</h2>



Low interest rates and Covid-era stimulus checks helped fuel bitcoin’s rise in 2020 and 2021, to its peak last November. Recent inflation reports and three rounds of Federal Reserve interest rate&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2022/09/21/fed-raises-rates-another-75-basis-points-pushing-borrowing-costs-to-highest-level-since-great-recession/?sh=48292968782a">hikes</a>&nbsp;this summer and fall, however, made investing riskier, accelerating crypto’s decline. In an interview with&nbsp;<a href="https://www.cnbc.com/2022/10/10/jpmorgan-jamie-dimon-warns-us-likely-to-tip-into-recession-soon.html" target="_blank" rel="noreferrer noopener">CNBC</a>&nbsp;on Monday, JPMorgan Chase CEO Jamie Dimon warned rising interest rates compounded with short energy supplies from Russia’s invasion of Ukraine are “very, very serious things” that are “likely to put the U.S. in some kind of recession” in the next six to nine months. Those have been bad signs for bitcoin, which&nbsp;<a href="https://www.forbes.com/sites/brianbushard/2022/08/27/bitcoin-drops-below-20000-amid-recession-fears/?sh=2e84567d77f4">dropped</a>&nbsp;below $20,000 on August 27 following the Labor Department’s inflation data. At roughly $890 billion, the overall crypto market has wiped out virtually all its gains since January 2021, according to CoinMarketCap.



<h2 class="wp-block-heading">WHAT WE DON’T KNOW</h2>



How the Federal Reserve will continue to tackle inflation, and if it means a fourth interest rate hike. Its latest last month raised rates another .75 percentage points—an effort to cut inflation by making borrowing more expensive and tempering demand, although&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2022/09/21/fed-raises-rates-another-75-basis-points-pushing-borrowing-costs-to-highest-level-since-great-recession/?sh=48292968782a">economists</a>&nbsp;are torn on the effects another rate hike could have on the economy, with some worrying it could drive it into recession.



<h2 class="wp-block-heading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/jonathanponciano/2022/10/13/inflation-spiked-worse-than-expected-82-in-september/?sh=7e6bee7a2712">Inflation Spiked Worse-Than-Expected 8.2% In September</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/billybambrough/2022/10/12/very-very-serious-jpmorgan-ceo-issues-a-stark-panic-prediction-warning-that-could-hit-the-price-of-bitcoin-ethereum-and-crypto/?sh=73004bf65dfc">‘Very, Very Serious’—JPMorgan CEO Issues A Stark ‘Panic’ Warning That Could Hit The Price Of Bitcoin, Ethereum And Crypto</a>&nbsp;(Forbes)



<a href="https://www.bloomberg.com/news/articles/2022-10-13/bitcoin-btc-becoming-less-volatile-than-stocks-raises-warning-flag" target="_blank" rel="noreferrer noopener">Bitcoin Becoming Less Volatile Than Stocks Raises Warning Flag</a>(Bloomberg)



By Brian Bushard, Forbes Staff

Crypto Markets Dip Toward Two-Year Low After Disappointing Inflation Report￼

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



The environmental cost of producing bitcoin places the digital asset alongside some of the world’s most environmentally unfriendly industries, according to a new&nbsp;<a href="https://www.nature.com/articles/s41598-022-18686-8" target="_blank" rel="noreferrer noopener">study</a>&nbsp;published in&nbsp;Scientific Reports&nbsp;on Thursday, amid increasing scrutiny over the sector’s environmental footprint and debate over the sustainable future of cryptocurrencies.



<h2 class="wp-block-heading" id="h-key-facts">KEY FACTS</h2>



The climate-related damages of each bitcoin generated—the asset is “mined” using an energy intensive computer process—in 2021 was more than $11,300, according to the researchers’ estimates, which were based on the economic costs of carbon dioxide emissions.



Between 2016 and 2021, the average climate damages of each bitcoin mined stood at 35% of its market value, the researchers estimated, rising to nearly 60% between 2020 and 2021.



The researchers said the numbers place bitcoin, which is often described as a “digital gold,” much closer to environmentally unfriendly industries like beef production (33%), producing gasoline from crude oil (41%) and using natural gas to generate electricity (46%).



From a climate damages perspective, the researchers said bitcoin is more of a “digital crude” than gold, which has climate costs of just 4% its value.



In total, the global climate damages of bitcoin between 2016 and 2021 are estimated at $12 billion, the researchers said, and the carbon emissions have increased 126 fold over that time.<img decoding="async" src="https://img.connatix.com/pid-546f0bce-b219-41ac-b691-07d0ec3e3fe1/e8869d3f-0f3e-474a-a43d-be85f87597b4/ff66cfa6-6839-4b4b-83e8-8eb8a5da856d.jpg?crop=445:323,smart&amp;width=445&amp;height=323&amp;format=jpeg&amp;quality=60&amp;fit=crop" alt="Los Angeles Chargers Roll The Dice With Rookie Jamaree Salyer At Left Tackle Against The Houston Texans">



<h2 class="wp-block-heading" id="h-key-background">KEY BACKGROUND</h2>



The environmental costs of cryptocurrencies, of which bitcoin is by far the largest, has become a key point in plotting the sector’s future. In 2021, the researchers estimated bitcoin mining used more energy than countries like Austria or Portugal. Sustainability has become a target for regulators around the world and China, which previously dominated the sector, sent miners&nbsp;<a href="https://www.forbes.com/sites/roberthart/2021/10/13/us-claims-top-spot-for-bitcoin-mining-as-miners-flee-china-crackdown---here-are-the-worlds-biggest-mining-hubs/?sh=22c3a7576af7">scrambling</a>&nbsp;in 2021 when it cracked down on the industry, at least&nbsp;<a href="https://www.wired.co.uk/article/china-ban-bitcoin-cryptocurrencies" target="_blank" rel="noreferrer noopener">partly</a>&nbsp;for environmental reasons. There are more efficient alternatives available to create and use cryptocurrencies out there. Ethereum, the blockchain underpinning vast swathes of the crypto ecosystem and ether, the second largest cryptocurrency, recently switched to this more sustainable system, a massive undertaking dubbed the “<a href="https://www.forbes.com/sites/roberthart/2022/09/15/ethereum-merge-heres-what-to-know-about-the-hotly-anticipated-upgrade-turning-the-crypto-player-green/?sh=24d1189e5bf9">Merge</a>.” It’s possible the bitcoin ecosystem could undergo a similar shift in the future and others are trying to make the industry cleaner by using&nbsp;<a href="https://www.forbes.com/sites/christopherhelman/2021/08/02/green-bitcoin-mining-the-big-profits-in-clean-crypto/?sh=22c46a1034ce">greener</a>&nbsp;energy to mine.



<h2 class="wp-block-heading" id="h-further-reading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/roberthart/2022/09/15/ethereum-merge-heres-what-to-know-about-the-hotly-anticipated-upgrade-turning-the-crypto-player-green/?sh=24d1189e5bf9">Ethereum ‘Merge’: Here’s What To Know About The Hotly-Anticipated Upgrade Turning The Crypto Player Green</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/christopherhelman/2021/08/02/green-bitcoin-mining-the-big-profits-in-clean-crypto/?sh=22c46a1034ce">‘Green Bitcoin Mining’: The Big Profits In Clean Crypto</a> (Forbes)



By <a href="https://www.forbes.com/sites/roberthart/"></a>Robert Hart, Forbes Staff

Sakura Bitcoin Exchange Inc. Store in Shibuya

Bitcoin’s Environmental Damage Is On Par With Beef, Natural Gas And Oil, Study Suggests

Nasdaq is taking its first steps into crypto services with an emphasis on security, entering the business with a custody product for bitcoin and ether aimed at institutional investors.&nbsp;



“We feel that custody is foundational to any other service that we build,” says Ira Auerbach, the newly named head of Nasdaq Digital Assets. “The ability to hold on to our customers&#8217; funds in a safe, secure, scalable and accessible manner is a key launch point for anything else we do in the future,” added the former head of the Gemini exchange’s crypto prime brokerage.&nbsp;



Crypto custody is central not only to Nasdaq’s digital asset ambitions, but to the industry as a whole. Clients are required to place enormous trust in their custodians, a confidence that individual investors are skeptical of handing over. This wariness has given rise to the phrase “not your keys, not your crypto,” meaning that private keys – analogous to passwords for the accounts holding crypto funds – do not belong in the hands of intermediaries. Since institutions are unlikely to build out their own infrastructure to custody assets, they need to choose a partner prepared to take custody of institutional-sized cryptocurrency accounts.&nbsp;



When asked why clients would choose a traditional financial player instead of a crypto-native firm to take custody of their digital assets, Auerbach responds that Nasdaq is uniquely positioned because of its knowledge of what institutional clients need in order to use a financial product.



“We have a long history of working with these institutions, we know their pain points, we have products built internally to address these pain points,” Auerbach said. “We think we can make institutions much more comfortable and usher in a larger adoption of the ecosystem.”



In parallel with the custody service, Nasdaq is expanding its anti-financial crime technology to weed out money laundering, fraud and market abuse in digital assets. The advantage Nasdaq has is that the company has the capabilities to analyze potentially fraudulent behavior in both traditional markets and digital assets as well, says Valarie Bannert-Thurner, senior vice president of anti-financial crime technology at Nasdaq.



“The criminals don’t just operate on-chain,” Bannert-Thurner said. “What we’re trying to do is look at the risk and try to identify the actual players that are doing the scams or manipulating the markets and not be limited to on-chain or off-chain. We’re saying let’s look at it across.”



Bannert-Thurner says the knowledge Nasdaq has from its anti-crime business is translating into the world of crypto, even if the underlying technology looks different at times. “The actual scams are not that different from what happened before,” Bannert-Thurner said. “Money laundering is still money laundering, but done slightly differently because you have to find mechanisms to do it.”



Nasdaq sells its anti-financial crime technology as a service to clients like crypto exchanges. While the new custody product is a separate endeavor, it will have crypto-specific anti-financial crime technology built in. One of these protections includes screening details of where digital assets originated and where they are being sent. Typically, users are able to send cryptocurrencies to any address they like without the receiver having to agree, in the same way that anyone who knows where you live can send mail without your approval. This runs the risk of wallet spamming or a practice referred to as “dusting,” which became popular when addresses associated with crypto mixer Tornado Cash were sanctioned by the U.S. Treasury. Individuals who had used Tornado Cash began sending small amounts of cryptocurrencies to the wallet addresses of celebrities like Jimmy Fallon to protest the sanctions. Nasdaq’s screening tool will flag funds coming in from a sanctioned wallet, for example.



Nasdaq’s entry into digital assets comes as other players including Blackrock and Fidelity are building crypto support. In August, Blackrock partnered with Coinbase to offer a private trust offering bitcoin exposure for institutional clients. Earlier this month, EDX Markets—backed by Charles Schwab<a href="https://www.forbes.com/companies/charles-schwab" target="_blank" rel="noreferrer noopener">SCHW</a>&nbsp;<a href="https://www.forbes.com/companies/charles-schwab">-1.2%</a>&nbsp;Corp., Fidelity Digital Assets and Citadel Securities — launched with plans to trade select tokens this year. The increased investment in digital assets comes despite the market’s persistent volatility and top asset bitcoin’s price being down 59% year to date.&nbsp;



“The big firms are starting now, many of them are still exploring, but many actually already are working on moving into the space,” Bannert-Thurner said. “We certainly haven&#8217;t seen the full institutional participation yet by any stretch.”



By Emily Mason, Forbes Staff

NASDAQ – Broadway & 44th Street, NYC

Nasdaq Enters Crypto Business With Focus On Security

Hand holding bitcoin

More Than Half Of All Bitcoin Trades Are Fake

BY TIANA CLINE



Current processes that track commodities such as palm oil through the supply chain require a lot of time and effort to perform, and often leave out valuable information around sustainability claims. Can blockchain solve the problem?



IN ITS PUREST FORM, PALM oil has a deep red color and a rich fragrance. When it was first discovered by Ca’da Mosto, a 15th-century explorer, he documented that it has “the scent of violets, the taste of olive oil and a color which tinges food like saffron”. Palm oil has been consumed as both food and medicine for thousands of years in West and Central Africa. While it remains a beloved, traditional part of African cuisine, it is a product that has become industrialized globally – bleached, refined, deodorized and relabeled to the point that it is now a hidden, food-like substance. Today, palm oil can be found in everything from ultra-processed foods to cosmetics and household cleaning products. It’s an indispensable ingredient, one linked to controversy ranging from slave labor to deforestation and greenhouse gas emissions. Can the blockchain help?



“Technology is a significant enabler of traceability and transparency, especially when it comes to knowing exactly where our raw material is coming from, even when it passes through many different hands on its way to us,” says Andrew Wilcox, the senior manager for sustainable sourcing and digital programmes at Unilever. “Getting full traceability and transparency in our supply chain is a crucial part of this journey.”



According to Wilcox, current processes that track commodities – such as palm oil – through the supply chain require a lot of time and effort to perform, and often leave out valuable information around sustainability claims. “There are currently no viable methods for preserving origin data at the scale of the commodity supply chain. This means that by the time the commodities are manufactured into products for consumers, products are simply marked as being sustainable or non-sustainable. This results in consumers rightfully questioning some of these claims.”



And that is where GreenToken comes in, a ‘chain-of- custody’ blockchain developed by SAP to help companies keep track of their bulk commodity supply chain sourcing, especially for raw materials like palm oil which is known for being especially difficult to trace.



“The supply chain is long and complex and until recently, has not had the benefit of a joined up digital transformation in recording palm [oil] movements from end-to-end,” says James Veale, GreenToken’s co-founder. GreenToken is one of the first initiatives to address that and make it into a repeatable standard.



“Ninety percent of the world’s raw materials are traded on a bulk basis. This means they are mixed with other identical raw materials at some point in the supply chain, causing most of the information to get hidden or lost,” adds Wilcox. “With GreenToken, tokens are created by commodity buyers (mills in the case of palm oil) and a range of information related to the crop (origins or sustainability credentials) are captured within the token. As the crop moves to each stage of the supply chain (e.g., a refinery), a request is made 



o transfer the digital tokens.” The blockchain tokens are therefore a digital twin for the crops, enabling a ‘virtual segregation’ even if the materials have been mixed with materials from a different source.



“The GreenToken blockchain has the ability to record RSPO certified palm at the grower delivery to the mill level and track that palm throughout the extended supply chain,” explains Veale. “In this way, the sustainable volume is made transparent on the blockchain wherever it may be in the supply chain, giving the end buyer a lot of confidence in their purchase.”



Certification from the Roundtable on Sustainable Palm Oil (RSPO) can take many years to achieve and the proven certified sustainable percentage is relatively small.



“End users can only claim that their palm oil is certified sustainable if they can trace it back to grower deliveries to an originating crush mill. As the supply chain is long and complex with much commingling and processing, and as off takers do not want to make unsubstantiated claims,” says



Veale. “Digital systems like blockchain can help carry this proven sustainable certification along the value chain to the off-taker, quicker, cheaper and with full auditability and so accelerate the evidence down the supply chain to the end consumer.”



Palm oil is the most land-efficient vegetable oil and the main source of livelihoods for millions of farmers and communities from Cameroon to Sierra Leone. There are 10 countries that make up the Africa Palm Oil Initiative with the biggest plantation (to date) sitting in Liberia.



As Russia’s War on Ukraine rages on and sunflower oil exports drop significantly, food producers are struggling to seek replacements and palm oil is making an unforeseen comeback that could potentially derail sustainability efforts if technology like the GreenToken blockchain doesn’t step in.



According to one plant-based company in South Africa that originally abstained from using palm oil, the sunflower oil shortage has made them seriously



Ultimately, the GreenToken blockchain will not only give consumers much-needed assurance that the palm oil they’re using is ethically-grown, it will help recognize the sustainability efforts of growers and smallholder farmers. “When we have a system that is potentially able to maintain and verify a tamper-proof record of commodities and their credentials, it gives more confidence that the premiums we pay for sustainable raw materials are impactful and can incentivise the production and purchase of sustainable commoditiesthroughoutthesupplychain,”saysWilcox.“We want our consumers to have the confidence when picking up a Unilever product that the product has been made with sustainable palm oil.”

Screenshot 2022-09-14 at 10.22.33

Connecting Palms In Africa: Blockchain For The Supply Chain

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Bitcoin suffered its biggest drop in three months on Tuesday, falling nearly 10% in the wake of a worse-than-expected August inflation report, as investors fear the Federal Reserve will raise interest rates for a third time this year, potentially sparking a so-called&nbsp;<a href="https://www.forbes.com/advisor/investing/cryptocurrency/what-is-crypto-winter/">crypto winter</a>.



<h2 class="wp-block-heading">KEY FACTS</h2>



<a href="https://www.forbes.com/digital-assets/assets/bitcoin-btc/?sh=4bd808ef4357">Bitcoin</a>&nbsp;continued a months-long fall Tuesday afternoon, dropping 9.35% to $20,304.73, following new Labor Department&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2022/09/13/inflation-climbed-83-in-august-slowing-for-second-month-straight-as-gas-prices-plunged/?sh=440a3b3266c5">data</a>&nbsp;that showed an 8.3% rise in consumer prices over the past 12 months ending in August, slowing for the second straight month, but still higher than economists had expected.



Bitcoin had been steadily climbing after briefly&nbsp;<a href="https://www.forbes.com/sites/brianbushard/2022/08/27/bitcoin-drops-below-20000-amid-recession-fears/?sh=11693c4f77f4">dropping</a>&nbsp;below $20,000 on August 27, but is less than a third of what it was at its peak of $67,037 last November.



It’s the largest drop since&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2022/08/18/crypto-winter-watch-all-the-big-layoffs-record-withdrawals-and-bankruptcies-sparked-by-the-2-trillion-crash/?sh=6ec3191f3309">June</a>, when bitcoin fell from $28,636 on June 11 to $20.556 on June 16—it continued its downward trend to a low of $19,327 on July 1, and economists warned that a looming recession could erase the progress cryptocurrencies had made during the Covid-19 pandemic, when shares skyrocketed.



Elon Musk-backed cryptocurrency&nbsp;<a href="https://www.forbes.com/digital-assets/assets/dogecoin-doge/?sh=2c9bed213ab3">Dogecoin</a>&nbsp;also fell 5.85% Tuesday, trading at 6 cents, while&nbsp;<a href="https://www.forbes.com/digital-assets/assets/ether-eth/?sh=20ebec4a7b0e">Ether</a>&nbsp;dropped $7.96% to $1,586.92, and crypto broker&nbsp;<a href="https://www.forbes.com/companies/coinbase/?sh=d9d9449699f6">Coinbase</a>&nbsp;dropped 8.61%, to $75.44.



<h2 class="wp-block-heading">KEY BACKGROUND</h2>



Although low interest rates and Covid-19-related government stimulus checks fueled bitcoin’s rise in 2020, two rounds of interest rate hikes from the Federal Reserve this summer made investing riskier. Last month, Federal Reserve Chair Jerome Powell&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2022/08/26/down-plunges-1000-points-after-fed-chair-powell-warns-inflation-requires-restrictive-policy-for-some-time/?sh=3d6e98691dd2">warned</a>&nbsp;soaring inflation might “take some time” to ease and require the Fed to act “forcefully.” In the week ending June 17,&nbsp;<a href="https://www.forbes.com/sites/jonathanponciano/2022/08/18/crypto-winter-watch-all-the-big-layoffs-record-withdrawals-and-bankruptcies-sparked-by-the-2-trillion-crash/?sh=6ec3191f3309">outflows</a>&nbsp;from bitcoin totaled roughly $423 million, after falling to an 18-month low, according to crypto firm CoinShares.



<h2 class="wp-block-heading">TANGENT</h2>



Stocks&nbsp;<a href="https://www.forbes.com/sites/madelinehalpert/2022/09/13/dow-plunges-900-points-after-hotter-than-expected-inflation-report/?sh=4932c9342a63">tumbled</a>&nbsp;throughout the day Tuesday in the wake of the Labor Department’s consumer price index report, with the Dow Jones dropping 3.87% to $31,163.99 and the tech-heavy Nasdaq falling 3.76% to $61.70 as of Tuesday afternoon, erasing recent stock gains as the price of food, medical care and shelter increased, despite falling gas prices.



<h2 class="wp-block-heading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/madelinehalpert/2022/09/13/dow-plunges-900-points-after-hotter-than-expected-inflation-report/?sh=65ab9c5f2a63">Dow Sinks 900 Points After Inflation Report Shows Stubbornly High Prices</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/brianbushard/2022/08/27/bitcoin-drops-below-20000-amid-recession-fears/?sh=11693c4f77f4">Bitcoin Drops Below $20,000 Amid Recession Fears</a>&nbsp;(Forbes)



<a href="https://www.cnbc.com/2022/09/13/bitcoin-slumps-7percent-reversing-gains-after-inflation-report-disappoints.html" target="_blank" rel="noreferrer noopener">Bitcoin slumps 7% after inflation report causes investors to flee risky assets</a>&nbsp;(CNBC)



By Brian Bushard, Forbes Staff

Bitcoin Drops Nearly 10% After Inflation Report—Its Biggest Drop Since June

End of savings

How One Man Lost $1 Million To A Crypto ‘Super Scam’ Called Pig Butchering

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Bitcoin dropped below $20,000 Saturday—trading at its lowest levels in over a month—after stocks sold off sharply Friday as investors pulled back from risky assets amid renewed concerns the Federal Reserve’s efforts to fight inflation could tip the economy into recession.



<h2 class="wp-block-heading">KEY FACTS</h2>



<a href="https://www.forbes.com/digital-assets/assets/bitcoin-btc/?sh=559db5a34357">Bitcoin</a>&nbsp;fell to a low of $19,886 Saturday before recovering slightly, trading at $20,055 as of the late afternoon, down 2.93% over the past 24 hours and off 70.1% from a record high of $67,037 in November.



The Dow Jones Industrial Average <a href="https://www.forbes.com/sites/jonathanponciano/2022/08/26/down-plunges-1000-points-after-fed-chair-powell-warns-inflation-requires-restrictive-policy-for-some-time/?sh=588003e11dd2">plummeted</a> more than 1,000 points to 32,283 on Friday after Federal Reserve Chair Jerome Powell warned that soaring inflation will “take some time” to ease and will require the Fed to act “forcefully.”



Other cryptocurrencies fell Saturday, with&nbsp;<a href="https://www.forbes.com/digital-assets/assets/dogecoin-doge/?sh=218959c23ab3">Dogecoin</a>&nbsp;dropping 3.53% to 6 cents, while&nbsp;<a href="https://www.forbes.com/digital-assets/assets/ether-eth/?sh=172941e47b0e">Ether</a>&nbsp;sank 4.99%, to $1,481.



Shares of leading crypto broker <a href="https://www.forbes.com/companies/coinbase/?sh=7f018c36699f">Coinbase</a>, meanwhile, fell 6.49% Friday to close at $66.74, down sharply from $368.90 in November, amid lower crypto trading volumes in a slumping market.



<h2 class="wp-block-heading">KEY BACKGROUND</h2>



Low interest rates and government stimulus during the Covid-19 pandemic fueled skyrocketing cryptocurrency prices, but they’ve fallen substantially in recent months. <a href="https://www.forbes.com/sites/jonathanponciano/2022/08/27/recession-watch-fears-return-as-fed-warns-americans-of-some-pain-as-economy-braces-for-more-job-cuts/?sh=26899eb57a88">Economists</a> are divided on the possibility of recession. On Friday, economists at Goldman Sachs said the odds of entering a recession over the next year are roughly one in three, while economists at Nomura said they believe one will start this year and Bank of America <a href="https://www.forbes.com/sites/jonathanponciano/2022/07/13/us-will-fall-into-recession-this-year-as-worrisome-forces-grow-bank-of-america-warns/?sh=f07403213baa">warned</a> a “mild recession” is possible by the end of the year. So far, the Federal Reserve has made two <a href="https://www.forbes.com/sites/jonathanponciano/2022/07/27/fed-raises-interest-rates-by-75-basis-points-again-as-investors-brace-for-recession/?sh=67733a542d5a">interest rate hikes</a> in its effort to curb inflation, raising its key lending rate 75 basis points in May and again in July, after inflation hit a 40-year high.



<h2 class="wp-block-heading">TANGENT</h2>



More than 50% of daily bitcoin trading is likely fake or non-economic,&nbsp;<a href="https://www.forbes.com/sites/javierpaz/2022/08/26/more-than-half-of-all-bitcoin-trades-are-fake/?sh=54de0c796681">Forbes&nbsp;determined</a>&nbsp;in an analysis published Friday, underlining concerns about the transparency and solidity of crypto markets. In the analysis of 157 crypto exchanges worldwide,&nbsp;Forbes&nbsp;found daily bitcoin volume on June 14 was $128 billion, 51% lower than the $262 billion from the total self-reported volume from multiple sources.



<h2 class="wp-block-heading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/jonathanponciano/2022/05/11/crypto-winter-sparks-coinbase-stock-crash-as-bitcoin-ether-and-other-major-cryptocurrencies-crater/?sh=51bf37247b62">‘Crypto Winter’ Sparks Coinbase Stock Crash As Bitcoin, Ether And Other Major Cryptocurrencies Crater</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/jonathanponciano/2022/06/27/crypto-funds-post-record-423-million-outflows-as-bitcoin-plunge-rattles-market/?sh=5acf2ffe72f6">Crypto Funds Post Record $423 Million Outflows As Bitcoin Plunge Rattles Market</a> (Forbes)



By Brian Bushard, Forbes Staff

In this photo illustration, a Bitcoin logo is displayed on a

Bitcoin Drops Below $20,000 Amid Recession Fears

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Cryptocurrency ATM firm Bitcoin Depot has agreed to merge with a special-purpose acquisition company (SPAC) which would take it public at an $885 million valuation, the company <a href="https://www.globenewswire.com/news-release/2022/08/25/2504442/0/en/Bitcoin-Depot-a-Leading-Bitcoin-ATM-Operator-to-Become-a-Publicly-Traded-Company-Via-Business-Combination-With-GSR-II-Meteora-Acquisition-Corp.html" target="_blank" rel="noreferrer noopener">announced</a> on Thursday, a listing that comes amid a major downturn in the cryptocurrency market and SPAC deals.



<h2 class="wp-block-heading">KEY FACTS</h2>



In a development&nbsp;<a href="https://www.wsj.com/articles/crypto-atm-firm-bitcoin-depot-strikes-885-million-spac-deal-to-go-public-11661418001" target="_blank" rel="noreferrer noopener">first reported</a>&nbsp;by the&nbsp;Wall Street Journal, the crypto ATM firm will merge with the Nasdaq-listed GSR II Meteora Acquisition Corp to form Bitcoin Depot Inc.



The company claims it is the largest Bitcoin ATM network in North America and has more than 7,000 operational kiosks in various retail outlets.



The company says it will raise $170 million in cash as part of the merger and listing process, which it plans to use for growth.



<h2 class="wp-block-heading">CONTRA</h2>



The merger comes at a difficult time for the cryptocurrency market and SPAC mergers both of which are facing major headwinds after a bumper 2021. Since the start of this year, the price of Bitcoin and Ethereum—the two largest cryptocurrencies by market cap—has slumped by more than 54% each. Several high-profile busts in the cryptocurrency market have also prompted more regulatory oversight. Cryptocurrency ATMs have also been banned from operating in the <a href="https://www.bbc.com/news/technology-60709209" target="_blank" rel="noreferrer noopener">U.K.</a> and even crypto-friendly <a href="https://www.reuters.com/world/asia-pacific/crypto-atms-offline-singapore-seeks-curb-on-impulse-trading-2022-01-19/" target="_blank" rel="noreferrer noopener">Singapore</a>. SPACs—publicly listed shell entities that merge with another company to take it public—which were hot ticket items on Wall Street last year have also taken a beating in 2022. According to a <a href="https://www.cnbc.com/quotes/.SPACPOST" target="_blank" rel="noreferrer noopener">CNBC tracker</a>, companies that went public through SPAC mergers have seen their values crash by almost 50% since the start of this year. Amidst the downturn, SPACs are also facing increased regulatory scrutiny, making them less desirable.



<h2 class="wp-block-heading">SURPRISING FACT</h2>



Unlike regular cash ATMs which allow users to withdraw and deposit money to their bank accounts, crypto ATMs are designed to allow users to purchase cryptocurrencies like Bitcoin with cash or by using a QR code.



By Siladitya Ray, Forbes Staff

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Reports are that Nigerians are increasingly considering cryptocurrency as a strategic investment.



Dele Bello vividly remembers relocating to Lagos from Warri, a town in Southern Nigeria, almost five years ago in search of greener pastures. After graduating from university, the dream of making it big in Lagos, Nigeria’s bustling cosmopolitan metropolis, was not only a way to pursue his dreams of making it as a software engineer but most importantly, a way of supporting his mother and sister back home.



However, things didn’t go according to plan. After sending out over 500 job applications and receiving no call backs, Bello found himself doing various odd jobs including at one point in time providing security services for a bank.



“I remember speaking to someone from the bank who initially introduced me to this thing called bitcoin and as someone with a computer science background I was immediately intrigued. I went home and began doing research into this and the rest is history,” says Bello.



That was the beginning of his breakthrough moment. With just $200 as an initial start, Bello is now a full-time bitcoin trader with over $400,000 worth of cryptocurrency. His mother and sister now live with him in the five-bedroom house he built in Magodo, a suburb in Lagos. Bello is one of millions of bitcoin evangelists in Nigeria, currently lauded as a global leader in bitcoin trade according to a report by the BBC.



Paxful, a leading peer-to-peer bitcoin marketplace, also considers Nigeria one of its most important markets with over 60,215 bitcoins traded between 2015 and 2020 accounting for almost $566 million. According to the platform, Nigeria is the second largest bitcoin market after the United States.



“I always say bitcoin is the miracle that will take Nigerian youths out of poverty. When the Nigerian government tried to shut us down during the EndSars protests, they blocked all forms of online payments and mobile money transactions to slow down the movement and guess what saved the day? Bitcoin,” avers Bello.



What makes Nigeria a particularly interesting cryptocurrency market is that in February 2021, its central bank banned commercial banks from dealing with cryptocurrencies claiming it was a “direct contravention of existing law”.



Despite the restrictions, cryptocurrency exchange platform, KuCoin claims that 33.4 million Nigerians still consider cryptocurrency as a strategic investment.



The country still ranked sixth in the 2021 Global Crypto Adoption Index which was published by blockchain analytics organization Chainalysis last year. The platform also reported that the cryptocurrency market in Africa grew by 1,200% in 2021.



The adoption rate of cryptocurrency is so rapid in Nigeria, that it made the central bank try to get in on the action. The eNaira, a digital form of the naira and the first national digital currency in Africa, according to Nigeria’s apex bank, was launched In October 2021. According to a speech by Nigeria’s President Muhammadu Buhari during the launch, the eNaira and the adoption of blockchain technology can boost the country’s GDP by $29 billion over the next 10 years.

Leading Africa’s Rapidly-Growing Bitcoin Market

Updated:&nbsp;When Adam Neumann revealed his new venture to WeWork-ify the residential real estate sector Monday, backed by a $350 million investment from Andreessen Horowitz, the announcement was long on hype, and short on details.&nbsp;



Forbes&nbsp;has learned that the company, Flow, intends to launch a digital wallet that can store crypto – among other currencies, including U.S. dollars – in addition to the real estate management software it announced previously.&nbsp;



Davidson Goldin, a spokesperson for Flow, said the planned digital wallet cannot be used to make rental payments for Flow-managed apartments using cryptocurrency it may store, but can be used for outside purchases like any other wallet.



Goldin confirmed Flow’s plans for a wallet after&nbsp;Forbes&nbsp;learned about recruitment efforts for the company this month, where a recruiter was promoting a role at a “ground breaking venture that will be one of the largest implementations of blockchain in the economy, involving a multi faceted approach that will be spearheaded by Adam Neumann (ex-CEO from WeWork).”



In a LinkedIn message sent to one potential product manager candidate, a recruiter for the role said that “Adam is building a next generation multi-family property management system with a proprietary payment system,” adding that the system “will include a full financial services wallet, a tokenized reward program and crypto payment methods.”



Flow spokesperson Goldin told&nbsp;Forbes&nbsp;the job description was largely false and should not have been distributed. He also provided an interview with Robert Gade, an employee of Coda Recruitment who’d been recruiting on Flow&#8217;s behalf. “I took some information that I gathered, working with bits and pieces, and the job description I put out was not accurate to what we were looking for,” Gade told&nbsp;Forbes. “I made a mistake and misrepresented the job.”



Instead, Goldin provided Forbes with another product manager job description that made no mention of “crypto” or “blockchain”, but said the new hire would be required to “analyze the technology ecosystem and services in the multifamily industry.”



Goldin said that Flow would not be receiving crypto payments for rental of its apartments, nor would the company be “one of the largest implementations of blockchain in the economy.” However, he added that a tokenized rewards program from Flow could involve cryptocurrency.



Regarding Flow’s work with Coda, Goldin said “We do not discuss the status of vendor relationships with the media.”



News of a digital wallet offering brings into clearer focus Neumann’s ambitions in the residential real estate space with his new venture. Since Neumann was ousted as CEO of WeWork, after he had raised $20 billion and failed to take the company public, the enigmatic business leader has been amassing a vast multifamily real estate portfolio, buying properties in secondary markets like Nashville, Tennessee, and Norwalk, Connecticut, while investing in adjacent businesses such as property management software company Alfred.



Mentions of crypto-related work appear on the job board for FOL Management, a real estate company that appears tied to Flow (Chris Hill, WeWork’s former chief product officer and Neumann’s brother-in-law, is president and COO). FOL is currently hiring for web3 engineers with “previous experience with one or several open L1 and L2 blockchains” who will help “redefine the economic experience of renters” by “leveraging new technology.” (After this story was published, the job board disappeared from the website).



Neumann has previously tested the waters of cryptocurrency, cofounding a startup called Flowcarbon, which recently raised $70 million in a funding round also led by Andreessen Horowitz. The startup intends to&nbsp;<a href="https://www.popsci.com/environment/crypto-carbon-credit-tokens/" target="_blank" rel="noreferrer noopener">tokenize carbon credits</a>, but recently delayed a token sale citing poor cryptocurrency market conditions.&nbsp;



In a blog post Monday, Marc Andreessen wrote that his venture capital firm is backing Flow because he views Neumann’s company as a “direct strike” at the current housing crisis, one driven by our country “creating households faster than we’re building houses.”&nbsp;



While not stating exactly what the business purpose of Flow is, he dropped multiple hints about the issues it is trying to fix: “You can pay rent for decades and still own zero equity — nothing,” he wrote. Andreessen Horowitz declined to comment.



By David Jeans, Forbes Staff

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Former WeWork CEO Adam Neumann’s New Real Estate Company Is Planning A Digital Wallet That Stores Crypto

For the past five years, cryptocurrency entrepreneurs have been in fierce disagreement with U.S. regulators over an existential question: whether certain digital assets are securities, or investment contracts that need to be registered with the Securities and Exchange Commission. The stakes are high–if a cryptocurrency is deemed a security in a U.S. court, it basically dies in the American crypto ecosystem. That’s because it can’t currently be traded on any cryptocurrency exchange, since none of them has a national securities exchange license.



Two weeks ago, the SEC filed a&nbsp;<a href="https://www.sec.gov/litigation/complaints/2022/comp-pr2022-127.pdf" target="_blank" rel="noreferrer noopener">complaint</a>&nbsp;in federal court asserting that nine tokens available to trade on Coinbase were securities, and the decree initially sounded like a step toward more regulatory clarity. But the SEC didn’t explain what makes the tokens different from other cryptocurrencies, and after the complaint came out, Coinbase published a blog post titled, “Coinbase does not list securities. End of story.” The episode was just the latest sign that the gap between the industry and regulators has never been bigger.



&#8220;The SEC chairman has publicly asserted that digital assets other than bitcoin are securities,” says Jai Massari, a former partner at law firm Davis Polk and now chief legal officer at blockchain startup Lightspark. Yet crypto companies have “necessarily taken the position that digital assets are generally not securities,” she says. It’s a stunning place for an industry to be, with near 100% disagreement between regulators and companies on a foundational question. “How this plays out in the coming months will shape the future of much of the existing crypto industry,” Massari says.



Until now, the SEC has kept an arms-length distance from defining which cryptocurrencies are securities, providing ambiguous guidance in public and private meetings with companies, according to securities lawyers&nbsp;Forbes&nbsp;spoke with. In its&nbsp;<a href="https://www.sec.gov/litigation/complaints/2022/comp-pr2022-127.pdf" target="_blank" rel="noreferrer noopener">recent claim</a>&nbsp;that nine Coinbase-listed tokens are securities, it invoked a set of guidelines called the&nbsp;Howey Test&nbsp;to make its argument. But the test is too vague and malleable to produce clear results, Massari and Davis Polk partner Joe Hall&nbsp;<a href="https://www.davispolk.com/sites/default/files/2022-03/Regulating%20Crypto%20Shouldn%27t%20Hinge%20On%20Securities%20Status.pdf" target="_blank" rel="noreferrer noopener">have written</a>. Meanwhile, the cryptocurrency industry has kept marching forward with the implicit belief that few digital assets are securities.



In January 2021, when President Biden selected Gary Gensler as the new chairman of the SEC, many in the industry pointed out that Gensler had taught a&nbsp;<a href="https://ocw.mit.edu/courses/15-s12-blockchain-and-money-fall-2018/resources/session-1-introduction/" target="_blank" rel="noreferrer noopener">blockchain course</a>at MIT and&nbsp;<a href="https://www.axios.com/2021/01/19/biden-sec-pick-is-no-stranger-to-crypto" target="_blank" rel="noreferrer noopener">hoped</a>&nbsp;he’d provide more regulatory clarity on which digital assets are securities. But that hasn’t happened, and it’s largely because of the political muck Gensler would find himself in if he did so, says Joe Hall, who has been a Davis Polk partner for 23 years and has been working on crypto regulation since 2013.&nbsp;



“When there&#8217;s a trillion-dollar market, any SEC chairman has to know that if he or she wades into that, it can be completely consuming and put them in the middle of a food fight between traditional financial services and crypto companies. Those are the worst kinds of fights to be in,” he says. “You have vested interests on both sides. It can consume an incredible amount of time and resources … you have to deal with your overlords on Capitol Hill.”



The “Pottery Barn rule”—a principle of “you break it, you buy it”–also exacerbates the situation for regulators. If the SEC says a certain cryptocurrency isn’t a security, it’s treated like an endorsement, attorneys say. Later on, if something goes awry with the asset and consumers lose a lot of money, Gensler will be heavily criticized by congressional oversight committees and the media, according to Hall.



“It&#8217;s easy to criticize the SEC from the outside,” Hall adds. “But I know exactly why they&#8217;re doing it. There is just no benefit from the point of view of an individual to stick your neck out and actually try to solve the problem. It&#8217;s much easier to bring enforcement actions against people for violating the laws.” An SEC spokesperson declined to comment for this article.



As crypto companies keep operating despite the risk of SEC enforcement actions, Hall doesn’t think those businesses are acting naively, or that they believe they can safely ignore what the SEC is doing. For better or worse, they’re just moving ahead despite the risks and uncertainty. “If you weren&#8217;t willing to live with regulatory uncertainty, there&#8217;s just no way you could operate in the business,” he says.&nbsp;



More recently, crypto companies have developed the financial strength and confidence to go head to head with the SEC. In late June, crypto asset manager Grayscale&nbsp;<a href="https://www.globenewswire.com/news-release/2022/06/30/2471737/0/en/Grayscale-Investments-Initiates-Lawsuit-Against-the-SEC.html" target="_blank" rel="noreferrer noopener">sued the SEC</a>&nbsp;for failing to allow the company to convert the Grayscale Bitcoin Investment Trust (GBTC), a bitcoin-based investment vehicle that it released in 2013, into a spot bitcoin exchange-traded fund (ETF), which would make the investment more accessible to the average U.S. investor.



How will the fundamental disagreement between regulators and the industry get resolved? “There’s no point in hoping that anyone at the SEC or a change in guard will result in the cavalry riding in,” Hall says. “We really need to turn to Congress to solve it.”



By Jeff Kauflin, Forbes Staff

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