Author: Jody McDonald

Jody is a Brisbane-based freelance writer who specialises in writing about business, technology, and the future of work.

Categories
Crime Crypto Exchange Illegal Stablecoins

Terra Co-founder Do Kwon Denies $39.6M Crypto Asset Freeze

Do Kwon, the CEO of Terraform Labs and the man behind the collapsed LUNA ecosystem, has denied a report from South Korean news outlet News1 claiming local prosecutors have frozen some of his crypto assets valued at 56.2 billion won (US$39.6 million).

In response to the report, Kwon tweeted that it’s a ‘falsehood’ and that he doesn’t have time to trade crypto.

Mounting Reports Matched by Kwon Denials

In his tweet Kwon also denied having accounts on the crypto exchanges KuCoin and OKX — this was a reference to his earlier denial of a September report that South Korean authorities had asked these exchanges to freeze 3,313 Bitcoin (BTC) linked to Kwon held on their platforms. 

Just a day earlier, Bloomberg had reported that South Korean prosecutors were claiming that Interpol had issued a red notice for Kwon, meaning law enforcement organisations globally had been asked to locate and apprehend him if he attempts to cross national borders.

Yet more claims against Kwon were reported back in July, when he was accused of rug pulling LUNA holders by quietly cashing out US$80 million per month in the lead-up to the blockchain’s collapse.

Despite these mounting reports against him and the fact he appears to have gone into hiding, Kwon maintains his innocence and claims to be cooperating with authorities.

Kwon Wanted in Relation to May LUNA Collapse

The legal troubles for Kwon stem from the spectacular collapse of the LUNA ecosystem in May 2022 in which the algorithmic stablecoin UST lost its peg with the US dollar, falling to virtually zero and taking down its sister token LUNA with it. 

This collapse wiped out around US$26 billion of investor value, triggered the collapse of Three Arrows Capital, contributed to the bankruptcy of crypto lenders Voyager and Celsius, and plunged the entire crypto market into a deep winter from which it is yet to emerge.

For his part in LUNA’s collapse, Kwon is now wanted by South Korean authorities for numerous crimes, including breaching the country’s capital-market laws.

Categories
Crypto News Dogecoin Social media

Elon Musk Revives Twitter Buyout – Dogecoin Rallies

twitter logo on mobile phone with Elon Musk in the background

Tesla CEO and part-time crypto memelord, Elon Musk, has sent a letter to Twitter through his lawyers indicating he is now willing to purchase the company for the originally agreed price of $US44 billion, or US$54.20 per share. The letter was also filed with the SEC. 

This surprising move comes after Musk had previously reneged on his offer to buy Twitter, citing the social media giant’s lack of honesty and transparency around the extent of spam bots on the platform.

Immediately following the letter’s release, the price of DogeCoin, the meme coin Musk is so fond of, surged eight percent — changing hands at the time of writing at US$0.0656, up 9.2% on the day.

Doge Coin Chart
Dogecoin chart over the last seven days. Source: CoinMarketCap

Deal to Close Twitter’s Case Against Musk

Musk’s new offer to buy Twitter specifies that the social media platform must immediately drop its legal action against him — relating to the retraction of his previous offer to buy the company — which was due to go to trial in just two weeks.

With Musk’s new offer, it appears the legal action has been dropped, and the deal, as originally agreed, will be closed:

The timing of this new offer begs speculation that Musk was trying to avoid going to trial, perhaps because he received legal advice that he was unlikely to win or in hopes of preventing information from being released at trial (already a large trove of Musk’s private text messages have been released as part of the case).

Musk has given the impression that he simply decided Twitter is, once again, a company he wants to purchase for strategic reasons. Following the release of the letter, Musk tweeted that the purchase of Twitter is an important part of his plan to develop ‘X’, something which he describes as ‘the everything app’.

Musk And Twitter: A Brief History

Musk originally offered to buy Twitter in April of this year, promising his purchase would bring a renewed commitment to freedom of speech on the platform — but the deal quickly ran into problems. 

Just three months after announcing his intention to purchase, Musk was backing out of the deal claiming that Twitter had provided him with misleading data about the prevalence of fake accounts and spam bots.

Twitter, for their part, insisted they had provided accurate data and took their case to the Delaware Court of Chancery to attempt to enforce the contract. 

Categories
Crypto News Illegal Regulation Social media

Kim Kardashian Fined $1.26 Million by SEC Over Unlawful Crypto Promo

Kim Kardashian adjusting hair

High-profile influencer and star of the reality TV show ‘Keeping Up With The Kardashians’, Kim Kardashian, has paid a total of US$1.26 million to settle charges brought against her by the US Securities and Exchange Commission (SEC) relating to her promotion of the cryptocurrency EthereumMax (EMAX) in 2021. 

The SEC filed the charges against Kardashian for failing to disclose that she received a US$250,000 payment to promote EthereumMax to her social media followers. 

Kardashian’s Promotion Biased, Banned From Promoting Crypto

The Instagram post from Kardashian that attracted the charges contained a link to the EthereumMax website and provided instructions to buy EMAX tokens, the cryptocurrency sold by EthereumMax.

Kardashian’s post was part of EthereumMax’s aggressive 2021 marketing push which saw numerous other celebrities, including boxer Floyd Mayweather Jr. and former basketball player Paul Pierce, endorse the cryptocurrency on social media. 

According to the SEC, Kardashian’s failure to disclose the payment she received for her part in the promotion was a breach of the anti-touting provisions of US federal securities laws, which are intended to protect consumers from biased and self-interested promotion of securities. Speaking about the case, SEC Chair Gary Gensler said:

“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion…Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”

SEC Chair Gary Gensler

As part of her settlement, Kardashian also agreed to cooperate with the SEC’s ongoing investigation into EthereumMax and to refrain from promoting any cryptocurrencies for three years.

What Is EthereumMax?

Despite having ‘Ethereum’ in its name, EthereumMax’s EMAX tokens aren’t related to Ethereum’s native ETH cryptocurrency. Rather EthereumMax is simply an ERC-20 token built on top of the Ethereum blockchain. It has a total supply of 2,000,000,000,000,000 — that’s right, two quadrillion tokens — and an unknown current circulating supply.

EthereumMax’s founders claim it’s a “progressive coin” that provides “lifestyle perks and financial rewards” to holders. However, it’s unclear exactly what these perks and rewards are. 

At the time of writing, EMAX is down over 98 percent from its all time high, which it hit on May 31, 2021, on the back of its aggressive celebrity endorsement drive.

SEC Charges Follow Investor Lawsuit

Kardashian’s charges aren’t the first legal stoush related to EthereumMax — in January 2022 a lawsuit filed in the US District Court of California’s Central District alleged the founders of EthereumMax, Steve Gentile and Giovanni Perone, and their celebrity spruikers were effectively running a pump and dump scheme. 

The complainant claims that while the celebrities pumped the price by promoting the cryptocurrency to their followers, they, along with the founders, were already dumping their EMAX tokens for a significant profit, while their followers were left holding the bag.

Categories
Celsius Cryptocurrency Law DeFi Ethereum

Bankrupt Celsius Launches Lawsuit Over Alleged Theft of 1000 ETH

Bankrupted crypto lender Celsius has filed a lawsuit against a former investment manager, alleging he cost the platform tens of millions of dollars through a combination of incompetence and theft.

The complaint, which was filed in New York’s Manhattan bankruptcy court on August 23, alleges that Jason Stone, through his company KeyFi Inc, falsely presented himself as an experienced and highly skilled digital asset manager, but was in fact negligent and “extraordinarily inept” at devising and implementing profitable crypto investing strategies.

Celsius Alleges DeFi Manager Used NFTs, Tornado Cash to Siphon Funds

The filing states that Stone worked with Celsius for about seven months up to March 2021 and was given access to a Celsius-controlled wallet for the purposes of managing the lender’s DeFi investing strategy.

Celsius alleges that rather than managing its assets as requested, Stone instead invested heavily in NFTs – including CryptoPunks and Bullrun Babes – to the tune of 1070 ETH. Allegedly, Stone later sold some of the NFTs for 1071 ETH before funnelling the funds through crypto mixing service Tornado Cash to his own private wallet rather than back into the Celsius-controlled wallet.

Celsius claims Stone had no authorisation to purchase NFTs as part of his role and suggests he might have done so because he was aware it was difficult for Celsius to track NFT purchases through its internal systems, making the theft harder to notice.

In addition to what it claims was intentional theft, Celsius claims Stone also cost the lender over US$50 million through his ineptitude, saying he proved himself “incapable” of investing profitably in cryptocurrencies.

Stone, responding to these accusations through his lawyer, Kyle Roche, claims all of the investments he made on behalf of Celsius were authorised by the lender’s CEO, Alex Mashinsky.

Claims Follow Previous Suit From KeyFi Against Celsius

These complaints come six weeks after Stone’s company, KeyFi, filed suit against Celsius, claiming it was operating a Ponzi scheme and that it owed Stone hundreds of millions of dollars in unpaid compensation. 

Stone claims Celsius ran out of money because it relied on attracting new customers by offering excessively high rates of return, and because it failed to adequately manage risk by hedging its investments. He also says he generated over US$800 million in profit in seven months for the lender, further claiming that he’s entitled to 20 percent of this profit – over US$200 million.

Financial documents filed by Celsius last week as part of its bankruptcy hearing show that the lender has a US$2 billion hole in its books and could be completely out of cash by the end of October.

Categories
DAO DeFi Ethereum NFTs

BendDAO Hit With Insolvency Crisis, Only 12.5 ETH Left

NFT lending protocol BendDAO is facing the serious prospect of insolvency as the amount of Wrapped Ether (wETH) remaining in its smart contract dwindles to just a fraction of what is owed to lenders. 

According to Twitter user and NFT market researcher NFTStatistics.eth, as of August 22 BendDAO only had 12.5 wETH while it still owned lenders an estimated 15,000 ETH – quite the shortfall:

This precarious situation has arisen partly because of a crash in the value of many leading NFT collections, including Bored Ape Yacht Club (BAYC) and Mutant Ape Yacht Club (MAYC).

BendDAO’s Model Based on NFT Value

BendDAO is a DeFi platform that allows users to borrow ETH using ostensibly ‘blue chip’ NFTs, such as BAYC, as collateral. The ETH that NFT owners borrow comes from other users who have deposited their ETH to the platform as a way to earn interest on their holdings. It’s these lenders who are at risk of being left holding the bag.

On paper, BendDAO’s model seems risky and, as it turns out, it is. The lender launched last year while the NFT market was particularly exuberant but the market has since taken a nosedive, exposing just how vulnerable this model is to market volatility. 

What’s Happening Now?

BendDAO is trying to boost its ETH reserves by adjusting the rate of interest charged to borrowers and paid to lenders. 

Statistics from the BendDAO website show that ETH borrowers are now required to pay over 100 percent interest on their loans (this is partially offset by 15.88 percent rewards paid in BendDAO’s own BEND token). 

Lenders are being offered a whopping annual rate of 66.9 percent on their ETH and a further 4.99 percent reward paid in BEND. Due to these high interest rates, borrowers’ levels of debt grow ever larger as the value of their collateral continues to fall.

What Next For BendDAO?

NFTStatistics.eth points out that most of the NFTs on BendDAO that have defaulted and gone to auction currently have no bids, citing two key factors: 

  1. BendDAO requires bids to be greater than the level of debt owed by the borrower and greater than 95 percent of the NFT’s OpenSea floor price; and
  2. Bidders are required to lockup their ETH for 48 hours.

NFTStatistics.eth also notes that as borrowers accrue more debt and NFT floor prices continue to fall, we’ll see many more NFTs default: 

Further according to NFTStatistics.eth, since none of the NFTs is selling, they’re not affecting the broader NFT market – but eventually they will need to sell, perhaps at a large discount, so that BendDAO can start to acquire ETH with which to pay back its lenders. If the NFTs are sold heavily discounted, we could see the prices of many NFT collections fall much further.

Decentralised Autonomous Organisations (DAOs), such as BendDAO, have been seen by crypto enthusiasts as a way to decentralise power and flatten organisational hierarchies, however recent research by Chainalysis has found that across 10 major DAO projects, one percent of token holders control 90 percent of voting rights.

Categories
Australia ETFs Investing Regulation

Brisbane-Based ‘Monochrome’ Gets Approval for Spot-Based ETF  

A Brisbane asset management company will offer spot-based crypto exchange traded funds (ETFs), becoming the first to be authorised under an Australian financial services licence (AFSL).

Monochrome Asset Management announced on August 15 that it had gained approval from financial services regulator the Australian Securities and Investments Commission (ASIC) to operate spot-based crypto ETFs under an AFSL. 

The approval opens the door for retail investors to benefit from fully regulated and direct insured exposure to crypto assets, including Bitcoin and Ether. The funds will be headlined by the Monochrome Bitcoin ETF (ticker code: IBTC).

To date, no crypto asset ETFs operate under an AFSL with a crypto-asset authorisation. ASIC’s decision to provide this AFSL authorisation opens new regulated investment opportunities for direct retail investors and through licensed financial advisers.

Monochrome Asset Management

ASIC Approval Offers Regulated Crypto Investing

Monochrome’s spot-based crypto ETFs are not the first launched in Australia – that honour went to ETF products established by Sydney-based Cosmos Asset Management in May, followed closely by 3iQ’s launch of a Bitcoin and Ethereum feeder ETF in June. 

However, Monochrome being the first to operate an ETF under an AFSL – a licence issued by ASIC that’s required to run a financial services business – could be a key differentiator for investors seeking trustworthy advice and investment vehicles.

Monochrome CEO Jeff Yew said that in addition to meeting market demand, its ETF would give crypto investors the protection of a “much higher degree of regulation”.

The regulator’s approval of this licence variation represents a major step forward for both the advice industry and retail investors, allowing advisers to meet the market demands of their clients when it comes to the nascent crypto-asset class. 

Jeff Yew, CEO, Monochrome Asset Management
Categories
Banking Celsius Crypto News DeFi

Celsius Has a $2 Billion Hole, on Track to be Out of Cash by October

Crippled crypto lending platform Celsius, which filed for bankruptcy in July, appears to be in an even worse financial position than previously thought, with papers filed this week revealing it may run out of money completely by October:

The papers filed in the US Bankruptcy Court for the Southern District of New York also showed that the lender holds US$2.8 billion less in crypto assets than it owes to depositors, leaving many users of the platform worried they may lose their deposits.

Celsius’ Books Don’t Make For Pleasant Reading

Celsius’ latest financial disclosure showed it had an opening cash balance of just under US$130 million in early August. The filing forecasts operating expenses and other costs to run to US$137 million over the next three months, meaning the lender will be in the red by the end of October.

The filing also showed that Celsius’ crypto liabilities to depositors exceed US$6.6 billion, while it only actually holds US$3.3 billion in crypto assets. 

The US$2.8 billion shortfall is largely due to deficits in the lender’s holdings of BTC, ETH and USDC. According to its financial disclosure, Celsius is more than US$2 billion short of BTC, over US$1 billion short of ETH and US$666 million short of USDC. These deficits are partially offset by its holdings of stETH, WBTC and its governance token, CEL:

Details of Celsius’ budget including its liabilities, deployment and assets, sourced from documents filed as part of US bankruptcy proceedings.

Could Celsius Sell CEL to Help Itself?

Celsius’ financial disclosure shows the lender holds 658 million of its CEL token of which 279 million are owed to customers, which leaves the lender with 379 million tokens. 

In the document CEL is valued at US$1 but the token has recently been the target of a social media-driven short squeeze, resulting in its price increasing significantly. According to CoinGecko, CEL was changing hands at US$2.45 at the time of writing – meaning Celsius’ CEL assets are notionally worth a lot more than the filing suggested.

So, what’s stopping Celsius selling its CEL tokens to help raise funds to pay its liabilities? Well, almost all circulating CEL is locked on Celsius itself. If the lender were to sell large quantities, the token’s value would likely collapse, leaving Celsius’ books in an even more dismal state.

In a cynical twist, crypto security firm Arkham Intelligence has evidence that it believes shows Celsius CEO Alex Mashinsky sold sizeable quantities of CEL via multiple transactions throughout May and August of this year. If true, this would mean the Celsius chief executive was actively dumping against the community-driven short squeeze to serve his own interests.

Categories
DeFi Hackers Stablecoins

aUSD Depegs by 99% Amid Hacker Issuing 1 Billion Tokens

Another stablecoin has shown itself to be anything but stable after the Polkadot-based DeFi hub Acala Network was hacked on August 14, causing its stablecoin aUSD to suddenly lose around 99 percent of its value:

According to a Twitter thread posted by the Acala Network account, the rapid plunge in value of aUSD was caused by a “misconfiguration” of its iBTC/aUSD liquidity pool that resulted in the minting of over 1.2 billion of new aUSD.

Network Paused in Aftermath

In the aftermath of the breach, an urgent governance vote was taken to pause network activity while Acala Network developers tried to trace exactly what happened and come up with a strategy to resolve the situation:

Acala Network developers also called on any recipients of the erroneously minted aUSD to transfer them to addresses under their control so they could be burned and taken out of circulation, in the hope this might restore aUSD’s peg.

Erroneously Minted aUSD Returned and Burned

Following a hastily arranged community governance referendum on August 16, nearly 1.3 billion erroneously minted aUSD were returned to Acala Network’s Honzon protocol and burned:

While this step has taken many of the newly minted aUSD tokens out of circulation, it hasn’t yet had any impact on the stablecoin’s price – at the time of writing CoinMarketCap was reporting its value as US$0.01, still down 99 percent from its intended peg of US$1.

This depegging event follows on from the June collapse of the Terra-based stablecoin, UST, which triggered further failures of Terra-exposed DeFi projects including the comically named Magic Internet Money.

In the midst of the chaos sparked by Terra’s collapse, Tron founder Justin Sun decided to launch his own algorithmic stablecoin, USDD, which he subsequently had to prop up to the tune of US$2 billion just months after its launch when it too lost its dollar peg.

Categories
Crime Ethereum Privacy Tornado Cash

Suspected Tornado Cash Developer Arrested by Dutch Authorities

Dutch authorities have announced their arrest last week of a Tornado Cash developer in Amsterdam for his alleged involvement in concealing criminal financial flows and facilitating money laundering through his work on the crypto mixing service. 

Tornado Cash, which is built on the Ethereum blockchain, allows users to conceal the sending and receiving addresses of transactions, thus concealing their identity. It has reportedly been widely used by criminals to launder stolen assets, but has also been used for legitimate purposes such as concealing the identities of Ukrainian citizens receiving donated crypto.

Dutch Investigators Say More Arrests May Follow

The Tornado Cash developer’s arrest was announced by the Dutch Fiscal Information and Investigation Service (FIOD) on August 12, two days after it took place. The FIOD said it couldn’t rule out further arrests in connection with the case.

FIOD’s interest in Tornado Cash began in June of this year when its Financial Advanced Cyber Team (FACT) launched a criminal investigation of the service. FACT claims that Tornado Cash has been widely used by hackers to launder vast quantities of stolen crypto assets including “funds stolen through hacks by a group believed to be associated with North Korea”.

FACT found evidence of high-value criminal cash flows through the mixer since it was launched in 2019:

Investigations showed that at least one billion dollars’ worth of cryptocurrencies of criminal origin passed through the mixer. It is suspected that persons behind this organisation have made large-scale profits from these transactions. 

Dutch Fiscal Information and Investigation Service (FIOD)

Crypto Community Reacts With Dismay

This arrest comes after the US Treasury’s sanctioning of Tornado Cash last week for what it described as the crypto mixer’s repeated failures to impose effective controls to curtail illegal use of the service. Tornado Cash had previously attempted to weed out criminal users of the service by blocking sanctioned addresses, but the US authorities considered these efforts inadequate.

The crypto community has generally reacted negatively to this arrest, suggesting it represents an infringement of the developer’s right to freedom of speech and an attack on crypto users’ privacy:

Other Twitter users have also pointed out the disparity between the treatment of the Tornado Cash developers and the creators of some high-profile crypto failures and rug pulls:

Categories
Celsius Crypto News Ripple

Ripple Keen to Scoop Up Bankrupt Celsius’ Assets, Report   

Blockchain payments company Ripple has expressed interest in acquiring the assets of insolvent crypto lender Celsius as a means to grow, according to a report from Reuters.

A spokesperson told Reuters that Ripple wanted to learn more about Celsius’ assets and was “actively looking for [merger and acquisition] opportunities to strategically scale the company”.

We are interested in learning about Celsius and its assets, and whether any could be relevant to our business.  

Ripple spokesperson

Can Ripple’s Interest Help Check Celsius’ Collapse? 

After pausing withdrawals from its platform in June due to liquidity issues, last month Celsius filed for bankruptcy in order to “stabilise its business”. Then, in an astounding twist, the lender laid claim to customers’ deposits in court, casting doubt on the likelihood of customers getting their money back.

Ripple’s comments to Reuters were in response to a query about the company submitting filings to the bankruptcy court seeking to be represented in Celsius’ proceedings, although Ripple is not one of Celsius’ major creditors.

Celsius’ bankruptcy filings show it holds digital assets in custody accounts, loans, a bitcoin mining business, and CEL tokens, bank cash and crypto.

It’s unclear how Ripple’s involvement might help users affected by the platform’s troubles. Following the news, the price of Celsius’ token CEL rose – it’s up over 30 percent in the past 24 hours.