decrypt.co
Judging by the glass-half-full price action this week, the worst of the damage from FTX’s historic collapse may be behind us—but this being crypto, nothing is certain.
This week, heads turned towards crypto prime broker Genesis, which recently suspended withdrawals on its lending side due to the fact that its derivatives business had $175 million exposure to FTX.
Crypto trader @CryptoCred posted a timeline of Genesis’s statements about its FTX exposure over this last month. It goes to show the validity of the saying “watch what they do, not what they say.”
Genesis Timeline
November 8: "No material net credit exposure"
November 9: We lost $7M
November 10: Okay, we have $175M locked in FTX
November 16: Sorry, no withdrawals or new loans
November 17: Okay, we need $1BN
November 21: We'll go bankrupt without the money
👍
— Cred (@CryptoCred) November 21, 2022
The news also affects the business of popular crypto exchange Gemini. Last week, it warned of major delays for users looking to withdraw their cash from its Earn product, which was in part serviced by funds borrowed from Genesis.
On Tuesday, Gemini tried to reassure its Earn customers:
1/5 Update for Earn customers: we continue to work with Genesis Global Capital, LLC (Genesis) — the lending partner of Earn — and its parent company Digital Currency Group, Inc. (DCG) to find a solution for Earn users to redeem their funds.
— Gemini (@Gemini) November 22, 2022
On a tangentially related note, two projects on Cardano both tweeted on Thursday that they were shuttering operations for similar (and similarly worded) reasons. The first was privacy and scalability solution Orbis:
Hey all of
Unfortunately due to constrained funding and uncertain conditions, Orbis Labs is unable to continue building and the project as come to a halt. This is unfortunate given the amazoing research and work that has been produced.
— Orbis (@orbisproject) November 24, 2022
The other was “all-in-one decentralized stablecoin ecosystem” Ardana, aka the “DeFi Hub of Cardano”:
Hello Ardana community,
Unfortunately due to recent developments with regards to funding and project timeline uncertainty, the Ardana project has had to come to a halt. Our code will remain open source for builders to continue our work going forward as they wish.
— Ardana - DeFi Hub of Cardano (@ArdanaProject) November 24, 2022
Reserves
One positive step for the industry after FTX is an increased interest in things like security, decentralization, and consumer protections. Certain businesses actually did well both during and after the catastrophe, including self-custodying solutions like cold wallet manufacturers and decentralized exchanges (DEXs).
Another thing consumers want from their centralized exchanges (CEXs) going forward is proof of reserves, and they certainly don’t want to see too much of the exchange’s funds being backed by tokens the exchange created itself, as was the case with FTX and its native token FTT. In light of this, KuCoin’s reserves are at the limits of acceptability, according to The Block Research:
KuCoin holds nearly one-fifth of its reserves in KCS, its own exchange token. Should this percentage start growing rapidly, it may become a cause for concern, just like how the illiquid FTT formed the bulk of FTX’s balance sheet. pic.twitter.com/DTvlqHihO7
— The Block Research (@TheBlockRes) November 21, 2022
Jesse Powell, the former CEO of Kraken, another popular CEX, laid down the law for transparent and secure reserves:
2/2 #ProofOfReserves audit must have:
1. sum of client liabilities (auditor must exclude negative balances)
2. user-verifiable cryptographic proof that each account was included in the sum
3. signatures proving that the custodian has control of the walletshttps://t.co/QEZo0DzJfw— Jesse Powell (@jespow) November 22, 2022
“Proto-danksharding”
Ethereum’s second most significant upgrade—after its recent transition to a proof-of-stake consensus mechanism—was considered for inclusion on Thursday, according to this announcement by core developer Tim Beiko, which was shared on Twitter.
.@TimBeiko quick recap of core devs call
Shared on Eth R&D Discord pic.twitter.com/vtJKarxJza— abcoathup.eth 🦇🔊🦆🌱 (@abcoathup) November 25, 2022
Ethereum co-founder and inventor Vitalik Buterin called the proposal “amazing progress” and said ordinary users can expect massively lower fees going forward.
Thread summarizing amazing progress on EIP-4844 (proto-danksharding).
This is a crucial first step to massively lower fees on L2, helping to make it affordable for much larger numbers of users to directly use on-chain applications instead of relying on cefi intermediaries. https://t.co/cMeIAV5aN5
— vitalik.eth (@VitalikButerin) November 24, 2022
Liam Horne, CEO of Ethereum scaling solution Op Labs, unpacked the proposal in a lengthy thread. He claims the improvement could lower fees on the network by as much as 100x.
Reminder: EIP-4844 adds a new fee market to ethereum for short-lived data. Rollups would use this for data availability instead of hijacking regular gas.
This is a GAME CHANGER for the rollup-centric roadmap, as fees could be lowered ~100x.https://t.co/tgy8GHVFUM
— liam.eth (@liamihorne) November 24, 2022
Elsewhere…
On Tuesday, several people noted a worrying and gigantic discrepancy with the U.S. dollar-pegged stablecoin Tether.
#Tether traded about 20% of annual world GDP in one night - apparently https://t.co/HHFvSdWjn7
— Paul Amery (@newmoneyreview) November 22, 2022
The following day, famous Chinese crypto investor Shen, who founded Fenbushi Capital in 2015—a company that describes itself as “the first-ever institutional crypto investor in Asia”—announced that hackers had looted him of $42 million in crypto a fortnight before.
A total of 42M worth of crypto assets, including 38M in USDC were stolen from my personal wallet ending in 894 in the early morning of November 10 EST.
The stolen assets are personal funds and do not affect on Fenbushi related entities.
— Bo Shen (@boshen1011) November 23, 2022
Central banks should HODL Bitcoin, according to a new paper from Harvard.
New Harvard University economics paper explains why banks should hodl #bitcoin pic.twitter.com/jWWiFcXmED
— Documenting Bitcoin 📄 (@DocumentingBTC) November 23, 2022
Disgraced former FTX CEO Sam Bankman-Fried tweeted on Wednesday that he will be breaking his silence with journalist Andrew Ross Sorkin next week.
I’ll be speaking with @andrewrsorkin at the @dealbook summit next Wednesday (11/30). https://t.co/QocjPtCVvC
— SBF (@SBF_FTX) November 23, 2022
Popular crypto influencer BitBoy flew out to the Bahamas to try and stalk—sorry—get an audience with Bankman-Fried. His journey was trending this week.
Hey Sam. I’m still here for you when you want to talk. No bull.
Put me on the guest list and I’ll be there in the morning. pic.twitter.com/3dskSWlCDe
— Ben Armstrong (@Bitboy_Crypto) November 27, 2022
Finally, enjoy this potentially scandalous slip from Terry Duffy, CEO of the world’s biggest financial derivatives exchange, CME Group.
“My regulator at the CFTC, I bribed—I asked…”
One of the funniest moment on cable in a long time pic.twitter.com/osBh8cnFi1
— Ryan Grim (@ryangrim) November 23, 2022