SBF epilogue; Binance halts withdrawals; Grayscale record; MetaMask & PayPal; Credit Suisse tokenized securities; Bank of Italy & Algorand; Symbiont Ch11; Bank of England CBDC; Nillion raises $20M.
14 December 2022
Hello there and welcome to the Blockchain From First Principle newsletter where we curate some of the week's news, summarise reports, and look at blockchain, crypto, and Web3 from the first principles for those seeking to understand more and stay ahead of their game.
Also, next week's edition will be our last Blockchain From First Principle of 2022 🎄 and it will be a special one 🎁! Don’t miss it!
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Table of Content
🗞️The 18 news you should be aware of
💸PE/VC funding
⚖️Policies and laws
📚Reports, here is the TLDR
📈Charts of the week
💡Metaverse and NFT news, trends, and insights
🔦Company spotlight
📅Blockchain, Crypto, and Web3 events calendar
👩💻The job fair
📚The term of the week
📎Miscellaneous resources
🗞️ The 18 news you should be aware of
Binance temporarily halted withdrawals for USDC while it carried out a 'token swap'. Exchanges into USDC from PAX or BUSD require routing through a New York-based bank which was not open at the time. The token swap could have been a way for Binance to get more USDC quickly while it waited for the bank to open and resume withdrawals. USDC withdrawals resumed around 8 hours after the original announcement.
2. Grayscale Bitcoin Trust discount widens to record high near 50%
Grayscale Bitcoin Trust shares have hit a record-high discount rate of nearly 50% relative to the price of bitcoin. GBTC allows investors to gain exposure to bitcoin through a traditional investment vehicle. Investors fear that Genesis Global Trading, which is owned by the same company that owns Grayscale, could file for bankruptcy. If GBTC is liquidated, a large amount of bitcoin will be dumped on the open market.
3. MetaMask and PayPal join forces to offer crypto onramp to select users
The integration represents the first between PayPal and a web3 wallet and will be initially rolled out to select U.S.-based PayPal users, according to ConsenSys. With the addition of PayPal, MetaMask is expanding its payment options to serve its users better and support the broader web3 ecosystem” ConsenSys said.
4. Ethereum devs plan to enable staked ETH withdrawals by March 2023
Ethereum's core developers have discussed launching a network upgrade that would permit users to withdraw staked ETH as early as March next year. Around $19 billion worth of ETH is currently staked. While the ability to withdraw staked ETH is supposed to be part of the Shanghai upgrade, it will be prioritized to roll out as soon as possible. Some suggested upgrades for the Shanghai update may be dropped if they prevent the update from being released in March.
5. SEC, CFTC, and SDNY attorney’s office charge FTX’s Sam Bankman-Fried with defrauding investors
The US SEC has officially charged Sam Bankman-Fried with defrauding investors. He is also being investigated regarding other securities law violations. There are ongoing investigations against other parties involved in FTX's collapse. The Southern District of New York's Attorney's office and the CFTC have also filed charges against Bankman-Fried.
6. Credit Suisse tests securities tokenization on public blockchain
A group of Swiss banks, Credit Suisse, Pictet and Vontobel, have issued tokenized investment products on the Ethereum blockchain testnet and settled transactions with fiat currency. The tokenized securities were traded on BX Swiss, the FINMA-regulated Swiss securities exchange and subsidiary of Börse Stuttgart.
7. Bank of Canada plans 2023 CBDC consultation as it moves to development
As part of Canada’s CBDC plan, it is moving from the research phase to the development phase. Next year, the bank plans for a general public consultation to understand the expected features. The Governor made it clear that the final decision to issue CBDC is up to the parliament.
8. Crypto Exchange Coinbase Asks Users to Switch USDT for USDC
Coinbase has waived conversion fees for global retail customers looking to convert their USDT to USDC. The exchange is a co-founder of USDC. It is running a campaign that highlights the quality of reserves that back USDC, claiming that the stablecoin is trusted and reputable. USDT is the third-most widely traded asset on Coinbase. It lost its peg days after the FTX collapse and it has yet to return to $1 on every exchange.
9. Binance's proof of reserves raises red flags
Binance's efforts to improve transparency have exposed red flags in its finances. A report released by audit firm Mazars lacks information related to the quality of internal controls and how Binance's systems liquidate assets to cover margin loans. It is also missing information about Binance's corporate structure. Binance's proof of reserves shows that the exchange is only 97% collateralized, excluding assets lent to users through loans or margin accounts.
10. Bank of Italy chooses Algorand for blockchain project
The platform, due to roll out early next year, will be the first time a European Union nation uses blockchain technology for bank and insurance guarantees. It is expected that a significant percentage of bank and insurance guarantees will leverage digital ledger technologies as part of Italy's National Recovery and Resilience Plan (NRRP).
11. Arbitrum money market Lodestar finance exploited
Lodestar Finance, a lending platform on the Ethereum scaling-solution suite Arbitrum, was attacked and exploited for about $6.5 million, and deposits have been drained. The exploiter was able to successfully manipulate the exchange rate of the plvGLP token to 1.83 GLP per plvGLP making it 83% more valuable than it should have been.
12. Binance.US rolls out fee-free instant settlement feature 'Pay'
Binance.US introduced a new feature, Pay, that allows users to send, request, and receive crypto with instant settlement and zero fees. The feature was rolled out to users of Binance's U.S.-specific subsidiary's mobile app on Dec. 13. It supports nearly 150 cryptocurrencies, including obvious majors such as bitcoin and ether.
13. Bank of England opens bidding for CBDC wallet proof of concept
The Bank of England opened applications for suppliers to provide a sample wallet for a central bank digital currency (CBDC). The application deadline for the £200,000 project is 23 December, The aim of the project is, how a central bank’s central CBDC ledger can interface with private sector payment providers.
14. FTX: US criminal fraud charges against Bankman-Fried include campaign finance
Following Sam Bankman-Fried’s (SBF) arrest in the Bahamas on Tuesday, the criminal indictment from the U.S. Department of Justice has been unsealed today and both the SEC and CFTC have filed civil lawsuits.
15. Citi, Nasdaq-backed blockchain startup Symbiont enters Ch11 bankruptcy.
Symbiont, the U.S.-based enterprise blockchain start-up, filed for Chapter 11 bankruptcy at the start of the month. The holding company is backed by the likes of Citi, Nasdaq Ventures, and Broadridge, with Vanguard as one of its biggest clients. The trigger was the inability to repay a loan from LM Funding secured on Symbiont’s assets and due on December 1 this year.
16. KfW in first digital bond issuance on Deutsche Börse D7 platform
German state-owned development bank KfW issued a digital bond on the Deutsche Börse D7 post-trade platform. The issuance was executed by Clearstream, the Deutsche Börse post-trade subsidiary. The KfW bond is a €20 million issuance with a two-year duration and a coupon of 2.381%.
Tokyo Electric Power Grid (TEPCO), a major utility company in Japan, is working with local mining rig manufacturer TRIPLE-1 to capitalize on excess power on its grid. The aim of the project is to "make effective use of surplus power" by creating new demand for crypto mining and artificial intelligence computation.
18. Uniswap Foundation Proposes Changes to Crypto DEX's Governance, Voting Processes
The Uniswap Foundation has proposed a series of governance changes that would streamline voting in the DAO. The biggest changes involve reducing the requirement for off-chain 'snapshot votes' that precede on-chain votes. This will raise the barrier for clearing preliminary votes, preventing lower-quality proposals from breaking through. Final governance votes will remain the same.
💸 PE/VC funding
1. Crypto accounting startup Bitwave raises $15M
Bitwave, which provides a finance platform for managing cryptocurrency assets, has raised a $15 million Series A led by Hack VC and Blockchain Capital. Among the startup's clients is NFT marketplace OpenSea.
2. Arca invests in Spaceport's $3.6M raise
The web3 intellectual property protocol, raised $3.6 million in pre-seed round co-led by Arca, Decasonic and Crit Ventures, the venture arm of game developer Com2us. Infinity Ventures Crypto, FBG Capital and Republic Asia are also among the investors that participated in the round, according to an announcement.
Decentralized sports prediction market Frontrunner raised $4.75 million in a seed round led by Susquehanna Private Equity Investments. Other investors in the round include SOMA Capital, Toy Ventures, Ledger Prime and WAGMI Ventures, according to the release.
4. Blockchain-free decentralization platform Nillion raises $20M
Nillion is built on a decentralised platform without a blockchain. The project is based on a mathematical innovation invented by cryptography professor Miguel de Vega called Nil Message Compute. Unlike blockchain technology, Nillion's network nodes do not need to communicate with each other to store transaction data.
5. Web3 game DOGAMÍ secures $14M total funding
The company has also launched its first mobile application, "DOGA House", which allows users to discover and interact with their “NFT puppies” in the “DOGAMÍ universe” while earning DOGA cryptocurrency.
6. Web3 music platform Public Pressure raised $6M
The funding led by Scytale invested in music blockchain solutions. Public Pressure’s Web3 platform is built on what it says is the “eco-friendly blockchain” Polkadot, to support the transition of music to Web3.
7. Figure SPAC plans to merge with the bank and, implement blockchain
Figure Acquisition Corp 1 signed a non-binding letter of intent to merge with a bank holding company that’s a mortgage lender and warehouse lender. The Figure SPAC (market cap: $412M) is affiliated with Figure Technologies, the blockchain start-up, and the merged SPAC intends to roll out blockchain solutions post-merger.
⚖️ Policies and laws
1. Warren, Marshall introduce bill to tighten money laundering rules for crypto
If made law, the bill would require digital asset service providers, miners, and network participants to follow know-your-customer rules and prohibit the traditional financial system from interacting with transaction mixers.
2. India looks to coordinate global crypto rulemaking as it assumes G-20 presidency
As India takes over the G 20 group, which includes 19 nations and the European Union as a bloc, for the next year, the country will bear the responsibility of shaping the group’s agenda, India’s government has refrained from taking a clear position on crypto. But this has not stopped India from imposing stiff taxes that have helped crush the local crypto industry
3. FTX debacle could lead to crypto legislation ‘Momentum’
The executive director discusses why the fall of FTX was a “massive setback” for the industry but not the end for crypto, and what likely happened to the $73 million in political donations from Sam Bankman-Fried. “Once that money is donated, it’s usually fairly quickly spent, If it turns out the source of these funds were indeed customer deposits, that’s obviously a massive misuse.
4. Australia moves to tighten safety around crypto in 2023
The Australian government, the nation's Treasury has promised to establish a framework for the licensing and regulation of crypto service providers in 2023. The framework will be part of "a strategic plan for the payments system" of Australia, set to release in Q1 2023.
5. Goldman: Regulators should protect crypto investors at the point of Trust, not the Blockchain
The recent report from Goldman highlighted that a highly volatile and relatively new asset creates the potential for instant riches. New financial instruments are lightly regulated because they are not covered by existing rules and regulators have yet to identify the potential for harm, “Regulation is needed at the point of trust, where money is exchanged on the promise of some future return”.
📚 Reports, here is the TLDR
As reported on November 9th, Sam Bankman-Fried went from regulators’ golden child to now the biggest thorn in their side in less than 48 hours.
A month later, Bankman-Fried is arrested at his apartment complex in the Albany resort in the Bahamas on a slate of criminal charges - wire and securities fraud, campaign finance violations, and money laundering - that could collectively carry a prison sentence of more than a lifetime.
Officials allege Bankman-Fried has a long-standing history of criminal activity, noting it runs as far back as 2019.
The accusations come just hours after a separate filing from the Securities and Exchange Commission with civil charges against Bankman-Fried. In the filing, the SEC alleged that SBF had used customer funds for “lavish real estate purchases”, “large political donations” and for some of the venture investments made in crypto startups.
John Ray III, who is overseeing the liquidation process, echoed some of these allegations in Tuesday’s House Committee on Financial Services meeting when he said that an ongoing investigation indicated that investments made from FTX Ventures, “were most likely made with either Alameda money or money that originally came from FTX.com.”
Ray made it also clear that his team will sell off assets and tokens held by FTX in his effort to return as much money as possible to FTX customers.
All of this caps a stunning fall for the 30-year-old Bankman-Fried who, until early November, was regarded as a white knight of the crypto industry, and who counted top politicians and investors among his friends.
It is unclear whether lawyers or prosecutors will try to claw back venture investments allegedly made with consumer funds from crypto founders, how long the extradition process may take, and when SBF will appear in a U.S. court to face the charges against him. All we know for now is that SBF is currently in custody in the Bahamas and was denied bail by a Bahamian judge.
PwC has released its 2022 Global Crypto Tax Report offering insight into key trends, developments, and challenges presented by developments in the global crypto tax space.
In terms of macro trends in tax policy, there are the key themes that emerged over the course of 2022:
Tax reporting has become a reality for the industry. Major steps to regulate digital assets at a global level include the OECD’s Crypto Asset Reporting Framework (CARF) / and updates to the Common Reporting Standard (CRS), along with DAC8 in the European Union (EU) and tax reporting rules in the US
Tax policy developments are finally emerging with a surprising balance between those likely to encourage or discourage crypto and digital assets
The indirect tax treatment of NFTs is receiving increased attention from governments. This creates operational challenges for NFT marketplaces
Early guidance is starting to emerge on DeFi in jurisdictions such as the UK and New Zealand
As the industry continues to grow in terms of users and adoption, more software solution companies trying to address the increased need for tax reporting.
But where are we going in terms of taxation? and what are the key industry issues that will emerge in 2023?
Regulatory pushback on the industry after the bankruptcy of FTX. This has led to public scrutiny and calls by lawmakers and regulatory agencies for clearer guidelines for crypto exchanges to operate under.
The Ethereum Merge is likely to bring increased focus to the taxation of staking income around the world. As this is a new form of passive income, the associated tax issues will need to be considered by policymakers.
Financial regulators are already exploring how to enforce regulation on decentralized systems and DAOs. Tax authorities will follow the lead of financial regulators in determining who is responsible for tax reporting and compliance.
With the rise of stablecoins, governments will need to find mechanisms to clearly define whether a stablecoin is or is not treated in the same way as a fiat money transaction for tax purposes
Tax enforcement will continue to increase in 2023 after the recent developments in the industry and therefore taxpayers should be prepared to provide accurate details of all their activities.
📈 Charts of the week
Web3 Identity Infrastructure Landscape - December 2022
Chainalysis data suggests that FTX’s demise hasn’t been crypto investors’ biggest issue this year.
Both the depegging of Terra’s UST token and the collapse weeks later of Celsius and Three Arrows Capital (3AC) drove much bigger realized losses.
The dollar impact of crypto market crises this year
1) FTX: $9 billion
2) Terra’s UST: $20.5 billion
3) Celsius and 3AC: $33 billion
Data: Chainalysis Inc.
A simple explanation demystifying the most common Ethereum token standards
Crypto VC deal activity - September 2022
Deal values and count declined more than 33% from Q2’s figures, but investors poured more money into Web3, marking a 44.5% increase in deal value over the previous quarter.
💡Metaverse and NFT news, trends, and insights
1. Magic Eden introduces discount and rewards system for marketplace users
Solana’s top NFT marketplace Magic Eden will reward users with discounts and NFTs based on their activity on the platform. Users can expect transaction discounts between 5%-45% based on the trader's role when the fees return.
2. Music NFTs are dominating the trends attracting artists and startups
Music NFT marketplace Sound.xyz has doubled in the last two months. Warner Music Group partnered with LGND.io to launch a music NFT marketplace on the Ethereum-compatible Polygon proof-of-stake sidechain. Electronic music Artists, Steve Aoki and Justin “3LAU” Blau will use CryptoPunks NFTs to form a new group Punx.
3. Rockstar and Microsoft officially banned NFTs from game servers
In a world where gaming firms like Alien Worlds, Splinterlands, or Axie Infinity show no signs of slowing down, Rockstar is opposing the move and published new user Guidelines effectively banning third-party role-playing services to buy and sell crypto and NFTs. Companies left because they didn’t know what to do with the technology, and don't want to change the traditional approach.
4. Users are worried as accounts on OpenSea are disabled without clear reasons
Users are pointing out that OpenSea is verifying certain accounts while disabling others in an “unfair” way. OpenSea responded to the query as some accounts were found to have violated their terms of service with no further explanation. Despite this fact, OpenSea is still at the top. Creators earned $1B from the platform in 2022.
5. LandVault’s new protocol mints metaverse builds and experiences as NFTs
Matera opens a completely new market for creators and investors. Contributors receive tokens proportional to their input during the creation of an experience. Matera stimulates the creator economy by enabling builders to create projects faster and find more liquidity.
6. Starbucks NFTs are now available to beta testers
Polygon-based NFT will have a point value based on its rarity and will be able to be put out for tender on the Starbucks Nifty Gateway-powered NFT marketplace, which launches next year. The experiences, called "journeys," will involve playing interactive games or taking on challenges that are designed to give the customer more in-depth knowledge of the Starbucks brand and coffee.
7. Polygon’s NFT adoption rate is high but hurdle in Sales Volume
With the collaboration with brands like Nike, Starbucks and Reddit, Polygon Studios CEO Ryan Wyatt, Polygon saw a huge adoption in the NFTs but the volume is still at an all-time low. The number of users per week in Polygon’s NFT ecosystem grew by more than 500% and transactions per week for the past four weeks totalled roughly 24.36 million.
🔦Company spotlight
This week’s company spotlight will be of particular interest to those who love to indulge in the finer things in life – a glass of fine wine!
The company: 👉 WineChain 👈 uses NFT infrastructure to create progressive and interactive relationships between prestigious wine estates and demanding consumers with a passion for wine. NFT marketplaces are there to provide access to wines directly from the vineyards and give customers exclusive access to rare wines with a guarantee of authenticity. The platform provided by WineChain allows members to purchase and trade the finest wine in the global market and own it as a digital asset in the form of an NFT. This suits anyone interested in consuming wine, storing it for a special occasion, or collecting and trading it for investment purposes.
The story: The founders of WineChain aim to build a platform that provides online and global access to premium wine, while also solving age-old issues of secondary trade & logistics within a web-3 platform. The team combines a mix of entrepreneurship, and an in-depth understanding of the wine market to produce the best product. The co-founders are Xavier Garambois (Ex Amazon Executive, Executive Chairman, MangoPay), Marc Perrin (CEO, Chateau de Beaucastel), and Guillaume Jourdan (CEO Marketing & Communication Strategy Consultancy for Luxury & Wine Brands). The startup has recently raised $3M and $6M in Seed funding rounds.
Why should I care: WineChain provides an example for future entrepreneurs of how they can leverage their passion in one area and successfully bring it to the world of Web3. The successful funding also shows an interest to use blockchain-based solutions for building a direct-to-consumer channel that delegates control to the suppliers. Overall, There has been a growing amount of innovation around NFTs in the wine world but also other finer perishable and non-perishable products, such as limited-edition footwear offers, in which blockchain technology could provide a digital guarantee of ownership history.
📅 Blockchain, Crypto, and Web3 events calendar
….for the next couple of months
Taipei Blockchain Week | Dec 12-17, 2022 | Taipei, Taiwan
MetaVentures Bangkok | Dec 14-15, 2022 | Bangkok, Thailand
Web3 Galaxy | Dec 15-16, 2022 | Dubai, UAE
Blockchain Expo World 2022 | Dec 21-31, 2022 | Istanbul, Turkey
Metavsummit | Jan 11-12, 2023 | Dubai, UAE
CFC St. Moritz | Jan 11-13, 2023 | St. Moritz, Switzerland
World Crypto Conference | Jan 13-15, 2023 | Zürich, Switzerland
Crypto Summit | Jan 16-20, 2023 | Zürich, Switzerland
Decrypt Davos 2023 | Jan 19, 2023 | Davos, Switzerland
Sustex - Blockchain for Climate | Jan 19, 2023 | Dubai, UAE
Bitcoin Day Naples | Jan 21, 2023 | Naples, FL, USA
Quantum Miami | Jan 25-27, 2023 | Miami, FL, USA
European Web3.0 Summit | Feb 7-8, 2023 | Antwerpen, Belgium
🆕 Fintech & Crypto Summit Bahrain | Feb 15-16, 2023 | Bahrain
🆕 European Blockchain Convention | Feb 15-17, 2023 | Barcelona, Spain
👩💻The job fair
Stacks Foundation: Blockchain security engineer, Remote
Stacks Foundation: Blockchain engineer, Remote
Februar.co: Content writer, Berlin/Remote
The Block: Product Manager( B2B)
📚The term of the week
Metaverse: a persistent set of online worlds that are interconnected within a single synchronous virtual universe in which physical reality, Augmented Reality, and Virtual Reality converge for communities of users or players.
Blockchain can be used as a Decentralized Ledger for Assets (from digital real estate and economic transactions to fashion and weapons represented as NFTs or Tokens) to be recognizable and trackable across the various interconnected worlds within a single Metaverse.
📎 Miscellaneous Resources
The opinions are our own. The content of this newsletter is not intended to serve as financial advice and is for general informational and educational purposes only. We do not warrant, endorse, or assume responsibility for the accuracy of any information offered by the third-party websites linked above.