Analysing what went right, and what went wrong, in this week’s Crypto Weekly Dispatch
The crypto market shed enormous value last week with bitcoin revisiting the $32k range last Monday.
The asset has since recovered slightly and (for now – at least) appears to be setting the stage for a return towards $40k. Other larger-cap alts also moving in positive territory over the past 24hrs include Cosmos, Fantom and Axie Infinity.
According to a recent blog post by Grayscale, the above alts are being considered by the world’s largest digital asset manager as part of a running list of investments it is considering making available to investors. Other assets in its list include Avalanche, Secret Network, Gala and Monero. With BTC having recently slid to a six month low, it seems institutions are clamouring to diversify and Grayscale is positioning as such. What will be challenging for Grayscale however, is convincing investors that the current discount to the NAV doesn’t widen further still.
Despite the broader crypto market downturn, spirits were high in Miami, where the alternative investment community gathered last week for several major conferences. The Copper team attended a number of these events and we were greeted warmly by both managers and allocators – many of whom acknowledged that the recent abysmal crypto price action doesn’t negate the industry’s long-term potential and technological innovation.
A huge thank you to everyone who stopped by our booths, joined us for our events at the Copper x AYU Yacht HQ, and showed up to party with us on the beach (which was fantastic despite the rain). The community and government support for the crypto ecosystem in Miami was truly incredible to witness and we can’t wait to go back.
On the other side of the world, Copper’s new partnership with ABB FIA Formula E got off to a great start in Saudi Arabia on Friday with the opening two rounds of the Championship. Our BD Director, Marcos Benitez, is still in town so if you’re in the region and interested in setting up a meeting, do ping him on LinkedIn.
Wonderland to wind down after previous crimes of its anonymous co-founder surfaced. To what extent will this fiasco shake confidence in anon-founded DeFi projects?
Last week’s most action-packed story (worthy of a Netflix doc for sure) emanated from the Avalanche-based project, Wonderland. Launched in September 2021, the DeFi protocol is helmed by the prominent DeFi developer, Daniele Sestagalli, and the previously anonymous treasury manager, ‘Sifu‘.
On Thursday, an anonymous Twitter account with a track record of exposing nefarious practices in crypto, unmasked Wonderland’s Sifu as Michael Patryn – a felon with ties to the fraudulent Canadian crypto exchange, QuadrigaCX. In case your memory needs refreshing, QuadrigaCX collapsed in 2019, leaving more than 76,000 investors collectively out of pocket for at least $169m.
Patryn, who formerly went by Omar Dhanani before twice legally changing his name, has been convicted multiple times, according to a Bloomberg report. His crimes include computer fraud as well as bank and credit fraud. There’s naturally been a huge outcry from the DeFi community about a convicted felon and crypto scammer overseeing Wonderland’s $714m treasury.
The scandal also sent shockwaves throughout Sestagalli’s projects in the Wonderland community that refer to themselves as ‘frogs’ or ‘frog nations’. In addition to Wonderland, whose native token TIME has slumped more than 90% from its ATH, the other projects include Popsicle Finance and Abracadabra – the market caps of which have both seen double-digit drops of 40%+ and 20%+.
In a formal statement, Segastalli confirmed that he had known about Patryn and his chequered past for a month, but decided against disclosing his true identity because he believed in “giving second chances.” As you can expect, he has come under massive fire for protecting Sifu’s identity.
There’s obviously a ton to unpack with this story, especially around anonymity and freedom – themes that are central to crypto’s origins. Anon culture is widely celebrated in this industry with proponents arguing that it promotes freedom of expression while also rendering racial and gender-based discrimination impossible. Anon developers, as a result, are pretty standard in the space.
It remains to be seen if and to what extent this fiasco will shake the confidence of anon-founded DeFi projects. Hopefully, rather than being categorised as yet another high-drama DeFi story, this revelation will encourage the community to really think about the following:
1) How projects with anon-devs ensure accountability and consequences going forward.
2) Why the DeFi industry needs to do a much better job at exercising self-regulation before external forces come forward and regulate it on the wrong basis.
3) The importance of DOYR. Over the past few days, several smart contract devs have pointed to the protocol’s tumbleweed GitHub profile as a red flag and reminded the community to conduct thorough research on projects before investing.
With regards to Wonderland’s future – the story is still unfolding. 55% of participating Wonderland token holders voted against winding down the project and returning treasury funds to investors. However, Sestagalli stated that the project should wind down, writing: “It is clear from the vote that the community is divided.” He added: “The core and heart of Wonderland is still the community. If we cannot find agreement on whether to continue or not, it means that we failed.” Whatever happens next, this story will certainly have some intriguing implications for the space.
Diem is dead. What lessons can we draw from the demise of Zuckerberg’s beleaguered crypto project? Who are the winners?
It was said to have inspired China to jumpstart its digital yuan. Now, it’s been confirmed that Meta has pulled the plug on its stablecoin project, Diem (formerly Libra) after a rebrand and refresh attempt failed to win over regulators. As first reported by the WSJ, the Diem Association is preparing to sell its assets to Silvergate Bank for $200m.
The closure of Diem is the least surprising end to this misadventure. The project was after all littered with setbacks ever since Facebook/Meta published a whitepaper with the idea of a stablecoin tied to a basket of fiat currencies back in June 2019 (594 days ago to be exact).
Concerned about a firm of the social media giant’s size and influence taking such a stake in the mainstream global financial system, the backlash from policymakers saw the exodus of several of Diem’s partners, which included PayPal, Stripe, Mastercard, Visa and eBay.
Facebook then overhauled core parts of its stablecoin vision in April 2020, but central banks continued to view the project as a threat – even in its watered down form.
It’s fascinating to me that despite having never been launched, the project has left an indelible mark on the payments sector and the crypto regulatory landscape. Who can deny that the world of digital payments has been the same since Libra was unveiled? Immediately following its announcement, the G7 set up a working group on stablecoins. And of the 80%+ central banks now proactively looking into CBDCs, Libra was a starting gun and the reason to dramatically accelerate their efforts.
I also reckon it’s possible that the social media giant’s current Metaverse push may have been born from the unprecedented regulatory resistance it faced with Diem – encouraging the firm to spearhead its crypto energies not on the real world, but the virtual world instead.
A number of market spectators are now wondering whether this is the last we’ll hear of Meta’s digital asset attempts. It’s certainly difficult to imagine that one of the world’s wealthiest companies that owns platforms such as Instagram and Whatsapp will sit idly by. Perhaps partnerships down the road could prove less controversial?
Others are trying to figure out what IP could Diem possibly have that is worth $200m. But everybody – crypto proponents and non-crypto people alike – heaved a sigh of relief at yesterday’s confirmation that the project had been abandoned. The way I interpret this is that both traditional payment companies and crypto firms benefit from Meta failing to enter the payments arena. Less competition for all, right?
Weeks after launching a $2bn VC fund, FTX lands a $32bn valuation after a $400m fundraise. Where exactly is this growth leading?
The sprawling and ever-growing empire that is FTX continued to make headlines this past week. The exchange yesterday announced the completion of a $400m Series C funding round that gives it a phenomenal $32bn valuation. CoinDesk noted in its report that this is about the same as the market cap of Germany’s Deutsche Boerse and more than the Nasdaq exchange.
The fundraise puts FTX at a stronger position to go public if it opts to do so, but speaking on a potential IPO with Bloomberg’s Sonali Basak yesterday, FTX CEO, Sam Bankman-Fried, said that after raising another private round at such a strong valuation: “This is definitely something that’s making us not feel a ton of urgency to go public…We’re on the fence about that, we could imagine doing it, we could imagine not doing it.”
As of late, the exchange has seemingly been on a march to rapidly build out its business. SBF’s company announced in mid January that it would be establishing a $2bn VC warchest to invest in crypto projects. Meanwhile last Wednesday, the firm’s American affiliate, FTX.US, closed its first-ever fundraising round at $400m, valuing the US operation at $8bn.
While there’s certainly been a lot of talk about FTX being well on the path to becoming the next CME, FTX.US President Brett Harrison, recently confirmed to Decrypt that the exchange’s US arm has more than one rival in its sights, saying: “Our goal in 2022 is to become a formidable competitor to Coinbase, Robinhood, the CME, and OpenSea.”
Some market observers are starting to voice concerns about the overlapping roles played by crypto exchanges, and that FTX may just be the first instance of an enormous VC fund, leading exchange and market maker all existing under the direction of one management team. It is also being argued that in the current market downturn, FTX’s deep-pockets and meteoric rise is giving the crypto community confidence that in it, there are players sufficiently formidable to take on the largest TradFi players.
SEC rejects Fidelity’s proposed spot Bitcoin ETF. More
SEC delays decision on bitcoin-related ETFs from Ark 21 Shares, Teucrium. More
SEC approves BSTX for blockchain settlements on traditional markets. More
Brevan Howard taps talent from Jump Capital and Gemini for new crypto unit. More
Valkyrie applied with the SEC to launch a bitcoin miners ETF. More
Crypto exchange Bakkt has tumbled 90% since October debut. More
LEGAL + REGULATORY + GOV + CBDCs
State Senator introduces bill to make Bitcoin legal tender in Arizona. More
Putin: Crypto mining could provide Russia with competitive advantages. More
Hong Kong regulators impose limits on investing in spot crypto ETFs. More
El Salvador purchases more bitcoin worth $15m on market dip. More
Bank of Korea completes first phase of digital currency pilot. More
Caribbean digital currency, DCash, remains offline for second week. More
India to introduce 30% crypto tax, digital rupee CBDC by 2022-23. More
COMPANY + CeFi
Binance user protection insurance fund reaches $1bn valuation. More
Blockchain firm Valereum acquires 90% of Gibraltar Stock Exchange. More
Blockdaemon scores $3.25bn post-money valuation in new fundraise. More
JPMorgan Chase closes Uniswap founder’s bank accounts. More
Meta goes Brazil to trademark Bitcoin and crypto services. More
MicroStrategy buys more bitcoin for $25m. More
No changes in Tesla’s bitcoin holdings in Q4 2021, financial statement shows. More
DeFi + WEB3 + NFTs + METAVERSE
OpenSea bug allows attacker to get massive discount on popular NFTs. More
OpenSea reimburses users $1.8m after NFT listings error. More
Fantom Network’s DeFi Ecosystem is now crypto’s third-largest. More
Reddit is testing out NFT profile pics, but ‘no decisions have been made’. More
Fidelity seeks approval for two more crypto-metaverse ETFs. More
Monthly NFT trading volume reaches all-time high of $6bn in January. More
TUESDAY 1 FEBRUARY
The Federal Reserve releases a new research report on stablecoins. More
Day one of the Bitcoin for Corporations Conference by MicroStrategy. More
Theta Network TDROP launch. More
Particl hard fork. More
WEDNESDAY 2 FEBRUARY
Our Head of Research, Fadi Aboualfa, and NED, David Shrier, take part in Imperial Business School’s Transforming Organisations, Transforming Markets webinar. The panel discussion, Decoding Digital Assets, starts at 2:20pm GMT. More
THURSDAY 3 FEBRUARY
Peachfolio Polygon integration. More
FRIDAY 4 FEBRUARY
Chia AMA. More
Peachfolio AMA with Polygon. More
SATURDAY 5 FEBRUARY
Oasis Network community town hall. More
TUESDAY 8 FEBRUARY
House of Representatives committee schedules hearing on stablecoins. More