Daily Digest - 13 January 2023

Headlines

▌The Bank for International Settlements released a report on dealing with cryptocurrency risks

The Bank for International Settlements (BIS) has suggested that after a particularly turbulent year, authorities on cryptocurrencies can take three different approaches: regulation, containment or calling for a total ban on the industry. Global central bankers also proposed an alternative to “encourage sound innovation” through central bank digital currencies, according to a report on addressing the risks of cryptocurrencies released Thursday. BIS outlines the strengths and weaknesses of each of the three approaches, noting that they can be mixed and matched to apply to what they perceive to be different risks. The ongoing saga surrounding the collapse of FTX and the collapse of stablecoin TerraUSD are the main events cited. Without “gateways” like centralized exchanges, “cryptocurrencies will have to rely on users to self-custody their funds in digital wallets using private keys,” the report said. Banning encryption would be an "extreme option" and limit innovation.

Cryptocurrency

▌Financial Times: Genesis owes more than $3 billion to creditors

According to the Financial Times, citing people familiar with the matter, cryptocurrency brokerage Genesis owed creditors more than $3 billion, prompting its parent company Digital Currency Group (DCG) to consider selling some assets in its venture capital portfolio to raise funds. Among the venture capital assets DCG is considering for sale include 200 cryptocurrency-related projects in at least 35 countries, such as exchanges, banks and custodians, worth about $500 million. Genesis has hired investment bank Moelis to help explore options, but talks over external funding have so far failed to materialize. Genesis’ debts include $900 million owed to Gemini clients, €280 million owed to Dutch exchange Bitvavo, and money owed to clients of crypto savings firm Donut. Another group of Genesis creditors is represented by attorneys for Proskauer Rose, according to people familiar with the matter.

▌SBF: No funds were stolen, Alameda lost money due to market crash and three things led to FTX bankruptcy

SBF issued a document stating that in mid-November, FTX International was actually insolvent. Three things combined to cause the implosion: 1. During 2021, Alameda's balance sheet grew to roughly $100 billion in NAV, $8 billion in net borrowing (leverage), and $7 billion in liquidity on hand. 2. Alameda failed to adequately hedge its market exposure. Over the course of 2022, there has been a series of massive, broad-based market crashes in the equities and cryptocurrency space, causing their assets to lose around 80% of their market value. 3. In November 2022, an extreme, rapid, targeted crash facilitated by the Binance CEO left Alameda insolvent. The Alameda contagion then spread to FTX and elsewhere, similar to how 3AC et al. ended up affecting Voyager, Genesis, Celsius, BlockFi, Gemini, etc. FTX US remains fully solvent and should be able to refund all client funds. In addition, SBF stated in the details that no funds were stolen and billions of dollars were not hidden. Both FTX International and Alameda are legitimate and independently profitable businesses in 2021, each making billions.

▌Alameda liquidator lost $72,000 on DeFi lending platform Aave

Alameda liquidators lost $72,000 on DeFi lending platform Aave after being liquidated while trying to recover funds for creditors. The liquidator attempted to liquidate the position and in the process first removed the additional collateral used for the position, putting it at risk of liquidation. In a report shared with The Block, crypto data platform Arkham noted that over the course of nine days, the position was liquidated twice, totaling 4.05 aWBTC, a bitcoin-backed token used on Aave.

▌Trump’s new NFT series allows holders to have a Zoom meeting with Trump

A new series called Win Trump Prizes was launched on OpenSea, allowing users to purchase rewards related to former US President Donald Trump. Individual holders can claim 200 ETH ($277,000) for a one-on-one Zoom meeting with Trump, 50 ETH ($69,000) for a dinner ticket, 21.45 ETH ($30,000) for a meeting with Trump, etc. According to OpenSea’s Win Trump Prizes series, the series had a volume of 35 ETH ($48,500) and 669 owners.

▌Polygon plans to conduct a hard fork on January 17 to solve the problem of block reorganization and soaring gas fees

The developers of the Polygon PoS blockchain proposed to initiate a hard fork software upgrade to solve the gas peak problem and enhance the security of blocks on the sidechain network. The upgrade was proposed by the developers at Polygon Labs and is scheduled for January 17th. If approved by the community, the hard fork will aim to reduce the impact of transaction fee spikes and chain reorganizations, thereby improving Polygon’s performance and security. The primary goal of the hard fork is to make Polygon more secure against reorgs.