SEC - Page 277

In a recent letter to Binance users, Changpeng Zhao, the CEO of the popular cryptocurrency exchange, reflected on the company’s past and outlined key trends shaping the industry.

As Binance celebrated its sixth anniversary, Zhao acknowledged the challenges the company has faced over the years.

He recalled the bear market of January 2018, which followed a surge in user registrations.

Despite the market decline, Zhao emphasized the importance of prudent financial management, which the team learned during that period.

Zhao also discussed Binance’s experiences during the company’s second crypto winter. He mentioned the firm’s investments in the collapsed crypto project Terra and the bankrupt crypto exchange FTX.

Binance’s initial $3 million investment in Terra Classic (LUNC) experienced a significant increase in value, soaring to $1.6 billion before crashing close to zero in 2022.

In contrast, the company exited its investment in FTX early, more than a year before it encountered difficulties.

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These incidents led to increased regulatory scrutiny, with Binance being associated with FTX. Zhao addressed these comparisons, stating that Binance and FTX are different entities.

He rejected the notion that they should be grouped together, drawing a parallel to investment firms on Wall Street and the infamous Madoff case.

Despite the challenges, Zhao reassured Binance users that the company remains committed to prioritizing their interests and protecting them.

Looking forward, Zhao highlighted several trends shaping the industry.

He noted that traditional finance entering the crypto space would facilitate institutional adoption, decentralized finance (DeFi) would continue to accelerate, and more people would engage with Binance’s products.

Additionally, he anticipated the growth of regulated exchanges despite current market uncertainties.

Zhao emphasized the significance of getting the regulatory landscape right, asserting that countries that do so will have a significant advantage in the future.

He believes that we are at a pivotal moment in history, where the decisions made now will have far-reaching consequences for centuries to come.

In conclusion, Changpeng Zhao’s letter to Binance users reflected on the company’s journey, highlighting the lessons learned from past challenges.

He also outlined key trends in the industry, emphasizing the importance of regulatory clarity and the potential for transformative shifts in the financial landscape.

Despite the obstacles, Binance remains focused on its users and committed to their protection.

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OPNX, a specialized exchange for trading bankruptcy claims of collapsed cryptocurrency firms, has recently added FTX and Celsius claims to its platform.

In an announcement made on July 14, it was revealed that FTX claims can be instantly onboarded and converted into collateral in the form of OPNX’s native reborn OX (reOX) tokens or oUSD, the platform’s credit currency.

This allows users to engage in cryptocurrency futures trading using reOX as collateral.

The tokenization of the claims and the onboarding process are facilitated through a partnership with Heimdall, which also handles user verification.

The developers at OPNX explained the conversion process:”At the outset, claims will be converted into reOX tokens with a bonus of 100% of the market price, gradually reducing to 0% over a period of 50 weeks.

This means that during the first week, users will receive double the market price for their FTX claim.”

To illustrate this, OPNX provided an example: Suppose a user holds an FTX claim worth $1 million with a claim price of 30 cents on the dollar.

They would receive $600,000 worth of reOX claim amounts in return.

If a user’s claim is determined to have preference, an equivalent dollar value of the issued reOX tokens will be reclaimed from the user.

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The claims are transferred and securely stored in a separate trust.

OPNX was established earlier this year by Kyle Davies and Zhu Su, who are the co-founders of Three Arrows Capital, a bankrupt Singaporean hedge fund also known as 3AC.

On its first day of operation, OPNX recorded a modest total trading volume of $13.64.

However, by late June, the daily exchange volume had surpassed an impressive $30 million.

In May, Cointelegraph reported that the United States Internal Revenue Service is seeking $44 billion in unpaid taxes from FTX’s bankruptcy proceedings.

Similarly, on July 13, the U.S. Federal Trade Commission imposed a $4.7 billion fine on Celsius, with the judgment currently suspended.

OPNX’s listing of FTX and Celsius claims demonstrates its commitment to providing a platform for trading these bankruptcy claims in a secure and transparent manner.

With its tokenization process and collaboration with Heimdall, the exchange aims to offer users a convenient and efficient way to convert and trade their claims.

The growing trading volume on OPNX indicates the increasing interest and participation of users in this unique market.

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Lending protocol Geist Finance has announced its permanent closure due to significant losses resulting from the Multichain exploit, according to a social media post from the development team on July 14.

The protocol, which operated on the Fantom network, temporarily paused its contracts on July 6 and then resumed limited functionality, allowing only withdrawals and repayments, on July 9.

However, the latest announcement confirms that Geist Finance will not reopen for lending and borrowing activities.

Before the exploit occurred, Geist Finance had locked over $29 million worth of cryptocurrency assets in its contracts.

The lending protocol permitted users to borrow, lend, and utilize bridged tokens from the Multichain platform as collateral, including tokens such as USD Coin (USDC), Tether (USDT), Bitcoin (BTC), and Ether (ETH).

Chainlink oracles were employed to track the prices of these assets and determine their collateral and loan values.

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The recent social media post revealed that the Chainlink oracles had ceased to provide reliable information.

They were now listing the values of the non-bridged, or “real,” versions of each coin, which were more than four times the value of their Multichain derivatives.

As a consequence, reopening lending activities would result in bad debt for holders of non-Multichain coins, rendering it impossible to resume operations.

Geist Finance clarified that it did not hold Chainlink oracles responsible for its closure and placed blame on Multichain.org.

Blockchain analytics experts initially reported the Multichain exploit on July 7. Over $100 million had been withdrawn from the Ethereum side of Multichain bridges, affecting platforms like Dogechain, Fantom, and Moonriver.

While the Multichain team labeled the transactions as “abnormal” and advised users to stop utilizing the protocol, they refrained from explicitly referring to it as a hack or exploit.

Further investigations by on-chain sleuths and Twitter user Spreek on July 11 unveiled an unknown individual draining funds from the protocol using a fee-based exploit.

On July 14, the Multichain team confirmed that the withdrawals on July 7 resulted from a hack.

It was discovered that all shards of the network’s private keys were stored in a cloud server account controlled solely by the CEO, who had been apprehended by Chinese authorities.

Subsequently, the cloud server account was accessed by an unauthorized party to siphon funds from the protocol.

In an attempt to recover the assets, the Multichain team engaged in a fee-based counter-exploit initiated by the CEO’s sister on July 11.

However, she was later arrested, and the status of the assets she recovered remains uncertain.

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Binance, the popular cryptocurrency exchange, is marking its sixth anniversary amidst reports of significant layoffs.

The Wall Street Journal revealed that more than 1,000 employees have been laid off in recent weeks, resulting in a global downsizing of the workforce.

Customer service workers, particularly in India, have been heavily impacted by these cuts. With these recent layoffs, the total number of job losses at Binance now exceeds 1,000.

Prior to these cuts, Binance’s global headcount was estimated to be around 8,000, implying a potential reduction of more than one-third of its staff due to ongoing restructuring efforts.

On May 31, Binance had already announced a 20% reduction in staff, although they insisted it was not a downsizing measure but rather a reallocation of resources.

According to a spokesperson for Binance who spoke to Cointelegraph, the aim of these changes was to enhance the company’s agility and adaptability in preparation for the next major bullish phase in the cryptocurrency market.

Recent data from Glassdoor revealed that Binance had some of the least satisfied employees in the crypto industry.

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In response, a Binance spokesperson stated that the company seeks to hire individuals who can excel in a high-performance environment and are entirely dedicated to delivering exceptional service to users.

Since early June, Binance has faced a series of regulatory challenges globally, triggered by a lawsuit filed by the United States Securities and Exchange Commission.

In just 30 days, Binance was ordered to cease operations in Belgium, failed to secure a license in the Netherlands, was denied a crypto custody license in Germany, and lost its euro banking partner.

Furthermore, the exchange is under scrutiny in France and has been summoned to appear before Brazil’s Congress in relation to a Ponzi scheme investigation.

According to The Wall Street Journal, Binance’s most significant ongoing challenge is the investigation by the U.S. Justice Department into its activities and executives.

Binance CEO Changpeng “CZ” Zhao has steadfastly refused to relinquish control or step aside, which has raised concerns about the exchange’s long-term survival.

This stance reportedly led to the departure of several top executives, including former Chief Strategy Officer Patrick Hillmann.

On Binance’s sixth anniversary, celebrated on July 14, Zhao acknowledged that the company’s journey had been far from smooth sailing.

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Coinbase, a prominent cryptocurrency exchange based in the United States, has made the decision to temporarily halt customers in four states from staking additional assets due to ongoing legal proceedings initiated by local regulators.

In a blog post published on July 14, Coinbase announced that users located in California, New Jersey, South Carolina, and Wisconsin would be restricted from utilizing specific staking services until further notice.

This move comes after the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against the exchange in June, alleging the offering of unregistered securities.

Consequently, regulatory bodies in ten states took their own legal actions, leading Coinbase to suspend certain services.

Coinbase expressed its disagreement with the accusation that their staking services are considered securities, stating, “We strongly disagree with any allegation that our staking services are securities.”

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However, the exchange emphasized its commitment to fully complying with the preliminary state orders, even before having an opportunity to defend itself.

According to Coinbase, the pause in staking additional assets is only applicable to the regulatory actions taken in California, New Jersey, South Carolina, and Wisconsin.

Users based in Alabama, Illinois, Kentucky, Maryland, Vermont, and Washington can continue to stake cryptocurrency as they did prior to the regulatory proceedings.

This announcement followed the first pre-motion hearing in the SEC’s case against Coinbase.

The commission filed the lawsuit on June 6, alleging that the exchange has been operating as an unregistered security broker since 2019. Coinbase has consistently denied these allegations.

In recent times, both state and federal regulators have targeted various cryptocurrency firms for their staking services, arguing that such services violate securities laws.

In February, Kraken, another prominent exchange, reached a $30-million settlement with the SEC, necessitating the cessation of staking services and programs for its U.S. clients.

Coinbase’s decision to temporarily halt staking services in certain states reflects the growing scrutiny and legal complexities surrounding the cryptocurrency industry.

As regulatory actions and lawsuits continue, exchanges are navigating the challenges posed by compliance requirements while striving to defend their business practices.

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Zac Prince, the CEO of cryptocurrency lending firm BlockFi, is facing allegations of ignoring warnings from the company’s risk management team regarding lending assets to Alameda Research.

The unsecured creditors’ committee filed a document on July 14 with the United States Bankruptcy Court for the District of New Jersey, stating that BlockFi’s risk management team had raised concerns about the high risks associated with lending assets to Alameda.

Despite these concerns, Prince allegedly dismissed the team’s recommendations and proceeded to lend Alameda $217 million by August 2021.

The risk management team had warned about potential risks if the loans secured by the FTX Token (FTT) needed to be liquidated.

The filing revealed that as early as August 2021, BlockFi’s risk management team was informed that a significant portion of Alameda’s balance sheet consisted of unlocked FTT tokens.

This information alarmed the team, but Prince disregarded their concerns and encouraged them to become comfortable with Alameda’s borrowing size.

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Discussions between Prince and the risk management team regarding the risks associated with lending to Alameda shifted to offline meetings and Slack after January 2022.

BlockFi had approximately $1.2 billion tied to FTX and Alameda when it filed for bankruptcy.

In November 2022, when BlockFi filed for Chapter 11 bankruptcy, it acknowledged its significant exposure to FTX and its associated entities.

In July 2022, FTX US received a $400 million credit line from BlockFi, further deepening the financial ties between the two firms during a period referred to as the crypto winter.

The report stated that BlockFi recalled its loans from Alameda in June 2022, and Alameda repaid most of its outstanding balance.

However, instead of severing ties with Alameda, BlockFi decided to lend them nearly $900 million between July and September 2022, with the loans primarily collateralized by FTT tokens.

While it is acknowledged that Alameda/FTX’s downfall might have contributed to BlockFi’s demise, the filing emphasized that BlockFi’s problems were rooted in its own business practices and decisions that predated Alameda/FTX’s bankruptcy filing.

BlockFi issued a statement to Cointelegraph, stating its disagreement with the report.

The firm also filed a separate court document claiming that the committee behind the report cherry-picked statements out of context and failed to provide the promised objective analysis.

BlockFi directly cited its exposure to FTX as one of the reasons for its bankruptcy filing.

The practice of collateralized loans based on FTT tokens by FTX resulted in losses for numerous firms when the token’s price plummeted from over $25 to under $2 during the Chapter 11 filing and reported liquidity issues.

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The now-bankrupt cryptocurrency lender, Celsius Network, has announced its satisfaction with the resolutions reached with several U.S. government agencies.

This follows the Federal Trade Commission (FTC)’s enforcement of a $4.7 billion fine, which has been suspended to allow the company to return its remaining funds to users amidst its ongoing bankruptcy proceedings.

Celsius has confirmed that these developments will not affect its Chapter 11 bankruptcy plan or its capability to refund customers. The company has further pledged to cooperate with regulators and government agencies during this period.

However, this announcement was met with harsh criticism from members of the crypto community.

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Many expressed outrage on Twitter, accusing the company of mishandling customers and using corporate and legal jargon in its communication.

They also suggested that the company should use its remaining funds to compensate users instead of dealing with more legal expenses.

Simultaneously, former Celsius CEO Alex Mashinsky has been indicted with multiple criminal charges, including securities fraud, commodities fraud, wire fraud, and manipulation of the CEL token.

This development came after the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Celsius and Mashinsky for allegedly making false promises about safe investments via the company’s “Earn Interest Program”.

The U.S. Attorney for the Southern District of New York and the Federal Bureau of Investigation further announced fraud charges against Mashinsky, who was subsequently arrested. In response, Mashinsky pleaded not guilty to the charges of misleading customers and inflating the CEL token.

U.S. Magistrate Judge Ona Wang approved Mashinsky’s release on a $40 million bond, under conditions that restrict his travel and prohibit him from opening new bank or cryptocurrency accounts.

As the company struggles with its legal woes and bankruptcy, Celsius is committed to regulatory compliance and user reimbursement.

Despite the severe backlash, it is yet to be seen how these developments will affect the broader cryptocurrency market.

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