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SPIRIT Blockchain – Weekly Wrap-up 11/25/2022

Here’s what happened in blockchain and crypto this week.

As the dust settles following the FTX bankruptcy, crypto firms and industry participants are still assessing the damage on their businesses and the fallout on the industry as a whole, with the fate of some firms and funds potentially hanging by a thread. Unfortunately, the FTX contagion has rapidly spread to other crypto firms and crypto projects whose funds are stuck on the platform. To cushion the blow, Binance is now planning a $2 billion crypto recovery fund with contributions from Jump Crypto, Polygon Ventures and other firms. After the collapse of FTX triggered a sharp selloff in crypto markets fueled by high-profile bankruptcy fears, regulatory pressure and rampant short selling, prices of cryptoassets have largely stabilized. 
 
Many industry participants have rightfully pointed out that contrary to popular opinion, the FTX collapse was not necessarily a crypto issue. Instead, it was a failure of centralized finance, or CeFi. FTX was a centralized crypto exchanged that likely misappropriated $10 billion in user funds (see also below) while lying to investors. It also violated its own terms of service which prohibited the loaning out of customer funds. The narrative according to which the FTX collapse was a run on the bank, as suggested by a number of reports, is therefore a mischaracterization. Importantly, FTX’s implosion could probably have been avoided under a “proof of reserves” (PoR) system, an on-chain audit that provides transparency and evidence that a custodian or exchange actually holds the cryptoassets it claims to own. As a result, many crypto exchanges are rushing to publish PoR in an attempt to reassure investors that their funds are safe.
 
To the astonishment of the crypto community and a number of US lawmakers, both critical press coverage by large media outlets and enforcement by regulators have been largely absent so far. Crypto heavyweights including Kraken CEO and founder Jesse Powell,  Coinbase CEO and founder Brian Armstrong or former Andreessen Horowitz VC Balaji Srinivasan have criticized the “puff pieces” published by major US newspapers that downplayed FTX’s downfall and the role that founder and CEO Sam Bankman-Fried has played in it. Others, including former Meta head of crypto David Marcus and US congressman Tom Emmer have pointed out the lack of government oversight and enforcement, especially by Gary Gensler’s SEC.   
 
Meanwhile, a number of blockchain analytics firms have looked behind the scenes and into the factors that precipitated the exchange’s collapse and the ramifications for the broader market. An in-depth CoinMetrics piece suggests that Alameda Research’s large position in the FTT token – the cryptoasset that was central to Alameda’s and FTX’s survival – might have been used as collateral for a large loan from FTX. Through this loan, Alameda may have received funds that belonged to FTX’s users. Given Alameda’s poor risk management, these funds were subsequently lost. Another report by Glassnode shows that outflows from other crypto exchanges in the wake of the FTX collapse have been at unprecedented levels, with BTC and ETH holders seeking  safety in self-custody. 

 

While a more detailed account of the scope of recent FTX would go beyond the scope of our Weekly Wrap-Up, below is an overview of major FTX-related headlines this week: 

  • FTX founder Sam Bankman-Fried tweets he’d be speaking with New York Times columnist at next week’s DealBookSummit
  • US prosecutors opened probe of FTX before its collapse, Bloomberg reports
  • FTX owes almost $3.1 billion to its top 50 creditors, court filing says
  • FTX collapse Is “not a crypto failure” says US congressmanTom Emmer
  • Sequoia Capital apologizes to investors after $150 million FTX loss, WSJ reports
  • Bahamas’ financial regulator defends its treatment of FTXamid allegations it gained unauthorized access
  • FTX hacker moves $200 million in stolen ether to several wallets

 

Market Overview
 

The global cryptoasset market capitalization currently amounts to $868 billion –  little changed since Friday last week, with bitcoin accounting for 36.6%. Among the Top 30 cryptoassets by market cap, Litecoin (LTC) outperformed, gaining roughly 20% over the week. During the same period, the price of bitcoin (BTC) decreased by another 1.2% to $16,516 while the price of ether (ETH) fell slightly by 0.8% to $1,192. The total value locked (TVL) in DeFi sits at $41.3 billion – down from the $43 billion last week – with Ethereum accounting for about 57.5% of TVL.

 

This Week’s Headlines

  • Binance plans $2 billion crypto recovery fund with contributions from Jump Crypto, Polygon Ventures, and others
  • Crypto exchange Bybit announces $100 million fund to support institutional clients
  • DCG CEO Barry Silbert says company will emerge “stronger” after its subsidiary Genesis Global Capital warned of potential bankruptcy
  • Genesis Global Capital confirms hiring investment bank Moelis
  • Grayscale‘s GBTC discount to NAV hits record low at 45%
  • Three US senators urge Fidelity to drop Bitcoin retirement plan after FTX crash
  • New York Governor Kathy Hochul signs two-year moratorium on proof-of-work mining
  • DCG’s Foundry Digital is buying two cryptocurrency mining facilities and other assets from Compute North
  • Blockchain firm ConsensSys to collect IP addresses of MetaMask users as part of an update to its privacy policy
  • Block.one and CEO Brendan Blumer amass 17% stake in Silvergate
  • Hacker steals $42 million from Fenbushi Capital partner Bo Shen

 

Notable Deals and Fundraising

  • Crypto lender Matrixport looks to raise $100 million at a $1.5 billion valuation
  • Web3 and VR gaming studio Thirdverse raises $15 million
  • Cosmos-based DeFi protocol Onomy raises $10 million from Bitfinex and others
  • Polkadot-based interoperability protocol t3rn raises $6.5 million in a round led by Polychain
  • Proximity Labs unveils $10 million developer fund for trading protocols on Near
  • NFT utility platform Tropee raises $5 million led by Tioga Capital
  • Crypto privacy startup Nucleo raises $4 million in a seed round led by Bain and 6th Man
  • Man Group to start a dedicated crypto hedge fund, Bloomberg reports

 

Manuel Trojovsky, Head of Crypto Investments & Research

 

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