2023-12-19 10:17

Genesis requested a New York bankruptcy court to bar ownership changes to secure tax benefits on around $700 million worth of operating losses. Bankrupt crypto lender Genesis has won a bid to block its parent Digital Currency Group (DCG) from selling or reducing ownership in the company until Chapter 11 proceedings come to a close. By barring any changes to ownership, Genesis sought to secure certain tax benefits, a court order issued on Monday shows. The benefits are only applicable if Genesis remains part of the tax-consolidated group of which DCG is the common parent. Should DCG’s ownership of the lender fall below 80%, Genesis stands to lose benefits on around $700 million worth of “federal net operating loss carryforwards,” a motion requesting the block from November shows. The carryforwards can be used to decrease Genesis’ federal income tax liability in current and future years, the motion said, adding that could “translate into future tax savings that would enhance the Debtors’ cash position for the benefit of all parties in interest and contribute to a successful reorganization.” Genesis’ carryforwards are directly linked to the failure of the crypto hedge fund Three Arrows Capital in 2022, according to the motion. The lender filed for bankruptcy in January, after what was a tumultuous year for crypto, which saw several high-profile firms collapse one after the other. https://www.coindesk.com/policy/2023/12/19/dcg-cant-sell-or-reduce-ownership-of-genesis-until-bankruptcy-proceedings-close-judge-rules/

2023-12-19 09:46

Traders have increasingly favored these networks over Ethereum for their lower transaction fees and faster speeds. Tokens of Solana, Avalanche and Injective surged as much as 20% in the past 24 hours as the meme coin trading frenzy extended into a third week on these networks. Solana’s SOL jumped 8% while Avalanche’s AVAX added almost 12% before giving back some gains. Dog-themed tokens dogwifhat (WIF) and bonk (BONK) trended on Solana, while a hen-themed Coq Inu (COQ) led the meme narrative on Avalanche, surging more than 40% in the past 24 hours. Traders have increasingly preferred these networks over Ethereum for their much lower transaction fees and faster speeds: It costs less than a cent and takes seconds for a Solana transaction, while Ethereum can cost at least $15 dollars and take up to a minute. That’s led to more transactional activity on both networks, which has more than doubled in the past month, alongside an increase in active wallets and new users, data shows. Bitcoin (BTC), meantime, neared $43,000 in Asian afternoon hours as hopes around an expected spot exchange-traded fund (ETF) listing in the U.S. were boosted late Monday as traditional finance firm BlackRock revised its proposal, likely after regulatory feedback. Some trading firms said recent market movements showed no indication of a market correction in the short term. A correction is generally considered a drop of between and 10% and 20%. “Bitcoin has formed a double bottom on the intraday charts, and this dynamic indicates that the mood for a deeper correction has not materialized,” shared FxPro senior market analyst Alex Kuptsikevich. “On the other hand, Tuesday's peak is close to last Thursday's, leaving Bitcoin inside the range. Average fees on the Bitcoin network topped $37, hitting a yearly high. The growth was fuelled by another wave of activity in the Ordinals segment, which increased demand for space in the blockchain, and thus increased BTC demand,” Kuptsikevich said. https://www.coindesk.com/markets/2023/12/19/solana-avalanche-meme-coin-fever-continues-as-bitcoin-nears-43k/

2023-12-18 19:25

The overseeing board of Zcash, known for its privacy-oriented "shielded" addresses or "z-addresses," credited Wilcox with delivery of "the first real-world application of zero-knowledge proofs." Electric Coin Co., the primary developer behind the privacy-oriented blockchain network Zcash, said Zooko Wilcox, the project's creator, will step down as CEO and be replaced by Josh Swihart. According to a blog post from Electric Coin, Wilcox has served as the project's leader since 2015, when the company, then known as "Zcash," was created. Swihart, formerly senior vice president of growth at ECC, will return to the company to take on the CEO role, responsible for all strategic and tactical decisions, according to the post. "We feel confident in Josh’s leadership — in finding product-market fit, unlocking new partnerships and collaboration, improving Zcash usability and increasing adoption," Electric Capital said. "In addition to a vision for ECC and an optimistic passion for Zcash, Josh has a strong entrepreneurial, technical and product background." Wilcox will remain in his role as a director on the board of the Bootstrap Project, the parent company of ECC, according to the post. In a separate blog post, Wilcox wrote that "Zcash took over not only my life but also my identity." "It was hard for others to see Zcash as something separate from me. sometimes it was hard for me to do that myself," Wilcox wrote. "However, in the long run, I don’t think this conflation of Zcash with me personally is healthy for me, and I don’t think it’s healthy for Zcash." He wrote that he was looking forward to a "couple of months to think about how I can best help," but that "anything that I would commit myself to in the future would need to include Zcash, because the Zcash community is freedom’s best hope." ZEC, the native cryptocurrency of Zcash, was down 5.8% over the past 24 hours, in line with a broader slide in digital-asset markets on Monday. The price didn't appear to move much on the announcement of the CEO change. Bitcoin fork The Zcash network, officially launched in 2016 as "fork" or copy of the Bitcoin blockchain, is known for its "shielded addresses," in this case "z-addresses," which allow for encryption on one or both sides of a blockchain transaction. According to Zcash's technical documentation, Zcash relies on a type of mathematical proof called a zk-SNARK, derived from so-called zero-knowledge cryptography, which has become one of 2023's hottest trends in blockchain architecture. "The owner of a z-address can share its transaction details with trusted third parties via a view key – a key that grants read access but not spend authority over the address," the documentation reads. "This allows for “selective disclosure”, where transactions are auditable but disclosure is under the participant’s control. This allows compliance with payment for auditing, tax regulations, or anti-money laundering rules." Electric Capital, in its blog post on Monday, credited Wilcox for leading Electric Capital in its delivery, in Zcash, "the first real-world application of zero-knowledge proofs." https://www.coindesk.com/tech/2023/12/18/zcash-developer-electric-coin-ceo-zooko-wilcox-steps-downs-swihart-named-to-role/

2023-12-18 18:41

"It seems like there's smoke here, and it may be worth an investigation to see if there's a fire," a finance professor said. Crypto derivatives trading platform Hegic recently made millions of dollars by placing a trade of its own, loading up on tokens issued by an affiliated project. The strategy paid off in days, when Hegic shut the smaller business down. It might not just be a savvy trade, but a perilous one as well. Experts interviewed by CoinDesk warn that the chain of events could render Hegic vulnerable to what would be a first-of-its-kind insider trading investigation by the U.S. Securities and Exchange Commission. Hegic, a platform for trading crypto options on the Ethereum blockchain, could reap $17 million because of a highly profitable trading strategy executed by its pseudonymous developer, Molly Wintermute. She's the sole developer for Hegic and its less popular platform, Whiteheart. Late last month, Molly gave up on developing Whiteheart. In a message on the Discord server that Hegic and Whiteheart share, Molly said Whiteheart would return its $28 million treasury to investors and shut down. The redemption news caused Whiteheart's token to rally sixfold to $3,500 under heavy buying pressure from arbitrageurs eager for a piece of the treasury liquidation, a process Hegic is facilitating. But no one is profiting more than Hegic. That protocol's treasury, which is separate from Whiteheart's, bought nearly a third of WHITE's token supply three days before the shutdown announcement, according to blockchain data. Between that purchase and another in September, it can lay claim to almost half of Whiteheart's treasury: $17 million of ether (ETH). Securities experts who reviewed the situation told CoinDesk the case speaks to the "grey area" that decentralized finance protocols such as Hegic and Whiteheart purport to exist in and profit from. Their proponents have argued the old rules shouldn't (or can't) apply to new financial innovations built on blockchains. When executives at publicly traded companies know their business is about to do something potentially market-moving, they're barred from trading on that information until it's revealed to the public. If they do trade, that's insider trading – and it's illegal. Hegic and Whiteheart are not organized as conventional corporations and WHITE isn't a stock, so the same rules don’t apply. But as the SEC ventures into regulation of cryptocurrencies, that could change. What happened here could newly be considered illegal, the experts said. SEC Chair Gary Gensler has stated that the vast majority of cryptocurrencies are unregistered securities that ought to be subject to the same rules as stocks and bonds. "I think he would think it was a security and maybe an enforcement case would be appropriate," James Park, a law professor at UCLA who studies securities regulation, said of the WHITE situation. Molly Wintermute did not respond to a request for comment. Whodunit When examined through the securities law angle, the Whiteheart trading could raise questions about fiduciary duty, shareholder rights and information asymmetries on unruly crypto markets that would rather not be subject to such questions. According to Park, the U.S. prohibition on corporate executives trading using valuable secret information is part of their fiduciary responsibility. They can't, for instance, just frontrun earnings announcements. Things get tricky when one tries to graft this standard onto DeFi. Project founders – the likeliest stand-in for an executive – could say they don't control their creations, and thus don't have a fiduciary responsibility to tokenholders. Even so, Whiteheart and Hegic's relationship with Molly undercut this argument, according to Park. She created them, wrote their white papers, conducted their token sales and controlled their treasuries as their "solo core developer." She also announced the decision to close Whiteheart on Nov. 30. Molly's activity "shows that they are not some random person who is trading, but some person who tokenholders entrusted to develop this project in a way that would help them increase their profits," Park said. Some projects seek to bolster their decentralization by letting tokenholders vote on key business decisions. Whiteheart was not one of them. The only thing holders of WHITE were entitled to was 30% of the revenue generated by the protocol. If anything, that makes WHITE look more like a security, two lawyers said. Still, Whiteheart and Hegic exist in a world of legal uncertainty, and it's far from clear that securities laws should apply to them or their tokens, said Nejat Seyhun, a professor of finance at the University of Michigan's Ross School of Business. Despite that, "it seems like there's smoke here, and it may be worth an investigation to see if there's a fire," he said. Insider trading? WHITE spent most of 2023 in the forgotten corner of the crypto market. Three years after its founder raised 13,667 ETH (then worth over $8 million) to fund Whiteheart's novel hedging contracts, it had devolved into, at best, an afterthought to Hegic. "Molly delivered on the promise (protocol was up and running like it should) but the idea did not get as much traction as people thought. Even today, options in DeFi are the lowest used derivative, people don't trade them nearly as close to as much as perps/futures," said a longtime user of Hegic and Whiteheart, who goes by the screen name Parad0xPrince. Traders stopped trading WHITE, too. In the first three weeks of September 2023, Uniswap processed 14 total trades worth less than $9,000 total. It was priced at $78 – 87% below its value during the December 2020 sale. Then Molly started bidding. In 10 minutes of trading on Sept. 21, her wallet bought $158,000 worth of WHITE – over 16% of all the tokens. She paid for this trade using 100 ETH from Hegic's treasury. Two months later, she sent its WHITE proceeds to Hegic's current treasury wallet. This wallet traded WHITE again on Nov. 27. In a single trade, the Hegic treasury bought 2,900 WHITE tokens, paying $2.3 million worth of ETH. Again, the price of WHITE ballooned: from $193 to $2,000, before settling down near $500 three days later. Seven hours after roiling WHITE's Uniwap market, the Hegic Discord account promised "further announcements" about Whiteheart's future and advised holders against "hasty action." The news came three days later. Whiteheart would shut down and "refund" all WHITE holders at the price original investors paid in 2020: 1.7 ETH. A larger problem? There is evidence of “frontrunning” throughout crypto. According to market surveillance firm Solidus Labs, more than half of Ethereum-based tokens "experienced insider trading activity" right before their debuts on centralized exchanges, in the period between January 2021 and June 2023. Decentralized exchanges such as Uniswap are "a game changer for insider traders," said Chen Arad, chief external affairs officer of Soludius. They lack the monitors and regulations to stop such activity and make it easy for manipulators to strike, he said. But they're also a boon for those trying to catch them because every transaction is recorded publicly on the blockchain, creating a digital trail of breadcrumbs that regulators can follow, he added. That is "a point we emphasize in discussions with regulators," he said. Federal prosecutors have taken action. In a pair of cases against insiders at OpenSea and Coinbase, the U.S. Department of Justice cracked down on frontrunning as a form of "wire fraud." The distinction highlights how the government can allege illegal activity even if securities law – and the SEC – don't come into play. There hasn't yet been a case against insider trading in the DeFi markets. Arad expects that to change. "Many regulators are considering insider trading prevention as a key element of applying market abuse regulation to crypto and DeFi," he said. Winners and losers, but mostly winners Regardless of its status under securities law, the Whiteheart redemption plan gives investors in WHITE an uncommonly happy ending. Most crypto projects fall into obscurity only after their treasuries have gone to zero, leaving nothing for the tokenholders. A cottage industry of activist investors has developed around forcing struggling decentralized autonomous organizations, or DAOs, to buy out their investors before they run out of money. But Whiteheart never ran out of money. Molly and Hegic have set up a market on Uniswap that will buy every single WHITE token at 1.7 ETH apiece. That's the same ETH-denominated price WHITE's original investors paid three years ago. "I never saw a founder return money to ICO investors 1:1 even though he delivered on what he should," said Parad0xPrince, using the acronym for initial coin offerings. The biggest winner is undoubtedly Hegic protocol itself. Molly's trades netted a nearly 600% return on investment. Whiteheart may be dead, but nearly half of its riches will live on in Hegic. And the market approves. On Nov. 30, when the shutdown announcement went live and WHITE pumped to $3500, Hegic's token price climbed alongside its swelling treasury. The market drove the HEGIC token 60% higher in a single day. https://www.coindesk.com/business/2023/12/18/a-new-kind-of-insider-trading-hegics-defi-bets-might-attract-secs-attention-experts-say/

2023-12-18 16:20

The short video advertisement featured the actor best known for portraying the "Most Interesting Man in the World." With U.S. regulatory approval of a spot bitcoin (BTC) ETF now nearly universally expected perhaps as soon as January 2024, Bitwise Asset Management on Monday unveiled what appears to be the first advertising for the new vehicles. "You know what's interesting these days," reads Jonathan Goldsmith, the actor best known as the "Most Interesting Man in the World" from numerous Dos Equis beer advertising campaigns. "Bitcoin." Bitwise is among numerous firms awaiting approval from the U.S. Securities and Exchange Commission (SEC) for launching a spot bitcoin ETF. Unlike larger players like BlackRock, Bitwise has been offering crypto ETF products for several years, a point the ad makes clear at the end, saying "ETFs backed by crypto specialists." Among Bitwise's current offerings are the Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP) and the Bitwise Bitcoin Strategy Optimum Roll ETF (BITC), both of which are futures-based products. https://www.coindesk.com/business/2023/12/18/bitcoin-etf-ad-war-officially-underway-with-bitwise-campaign/

2023-12-18 13:48

Which projects will do airdrops? Will Kraken go public? Will OpenSea launch a token? I have no idea, but traders with skin in the game think they do. December is the month when pundits make predictions for the year ahead. It's a tiresome ritual. As George Costanza said in an infamous episode of TV's "Seinfeld" (you know the one): “Care to make it interesting?” Instead of interviewing "experts" or, worse, suffering my armchair prognostications about what lies ahead for crypto in 2024, let's take a look at what the prediction markets are saying. This post is part of CoinDesk's "Crypto 2024" predictions package. They may not be right, but participants in these markets are putting their money where their mouths are. So we can be fairly sure they are telling us what they really think, not what they want you to think, or what they think you want to hear. Sometimes, just the questions they ask can themselves be revealing. What are prediction markets? (If you already know the answer to that question, feel free to skip to the next section.) In prediction markets, participants bet on the outcome of real-world events, from the deadly serious (the war in the Middle East) to the frivolous (Taylor Swift's love life). They are typically framed as yes-or-no questions, and participants can buy "yes" contracts or "no" contracts. When the trade settles, those who bet on the correct prediction get $1 per contract purchased and those who bought the incorrect one get zero. For example, for the market on whether Christopher Nolan will win the best director Oscar for "Oppenheimer," "yes" contracts were recently trading at 68 cents, indicating the market sees a 68% chance he will get the nod. More than just a speculative game, these markets arguably have positive spillover effects for the public, by offering an alternative source of expert opinion, a counterweight to fallible legacy sources of information. For example, the prediction markets reportedly called the 2020 election more accurately than the polls. Cable news pundits generally aren't punished for being incorrect. In prediction markets, bettors stand to lose money if their predictions turn out wrong, giving them an incentive to express what they truly believe. Their beliefs might be wrong, but the financial risk should theoretically discourage uninformed wagers, and conversely the upside for betting correctly should attract traders with real insights … all else equal. Traditionally, prediction markets have been run through centralized websites that settle bets in regular fiat currency (PredictIt and Kalshi are the two best-known examples operating today). However, prediction markets are popular among crypto traders, and, in recent years, a number of platforms have emerged that run on crypto rails. The advantage of using crypto is that traders are free to bet on controversial questions without interference from some centralized entity. InTrade, a popular U.S. prediction market in the early 2000s, was forced to shut down by the Commodity Futures Trading Commission (CFTC) more than a decade ago, underscoring the risk of centralized operators. I take back what I said above. Here's one traditional analysts' prediction for 2024. "More than $100 million will be staked in prediction markets, which will emerge as a new 'killer app' for crypto," write the team at Bitwise Asset Management in their annual forecast. "Crypto takes prediction markets to the next level by making them borderless and permissionless, and by automating functions like determining winners and losers and making payouts," the Bitwise researchers go on. These markets will become "a primary venue for both event-based and more traditional sports-related wagering." Even if that's overly optimistic, it's worth taking a look at what prediction markets are saying about what else might happen in crypto next year. Which crypto projects will do airdrops in 2024? Polymarket bills itself as the largest prediction market platform of any kind, and it's by far the largest crypto-based one. To make bets there, you need to deposit either USDC, a stablecoin or digital currency that usually trades at par with the U.S. dollar, or ether (ETH), the second-largest cryptocurrency by market cap and the native token of Ethereum, the leading smart contract blockchain. (ETH deposits are automatically converted to USDC.) Given that requirement, it's no surprise that in addition to sports, pop culture and politics, a popular topic of bets on Polymarket is crypto itself. Most of the crypto-related markets are about things that may or may not happen before the end of the year – for example, whether bitcoin (BTC) or ether will hit certain price levels. But a handful concern what's ahead for 2024. Among those, a recurring theme is airdrops. These are giveaways of crypto tokens to wallets that meet certain criteria, e.g. if they've previously used certain services. Based on Polymarket trading levels on Dec. 12, the odds are almost 50-50 that Aleo, a privacy-minded decentralized finance (DeFi) project, will do an airdrop by April; there's an 11% chance that the Pudgy Penguins non-fungible token (NFT) collection will do one before March; and a 62% chance that Blast, a layer 2 blockchain launched on Ethereum last month, will give away tokens by May. A big caveat here is that the trading volumes on these niche questions are small – in the thousands of dollars for each of the markets mentioned above. One reason may be that Polymarket is not allowed to serve U.S. residents under a settlement with the CFTC, excluding a broad swath of traders from the world's largest economy. Combined, there are $10,000 worth of bets on whether five different projects will do airdrops on the Solana blockchain by March 1, but again, when you break them down, they total thousands of dollars for each. Probabilities range from 16% for Kamino, a DeFi protocol, to 39% for another one, MarginFi. It's easy to see why airdrops are a popular topic. They represent free money, after all. And if investors have an inkling of which protocols are likely to do airdrops for participants in a certain timeframe, and which ones aren't, it can inform their decisions about where to put money to work. Kraken IPO? OpenSea token? Other interesting questions posed on Polymarket include whether the Kraken exchange will go public by June (a 21% chance as of Dec. 12), and whether OpenSea, the NFT marketplace, will issue its own token by May (a 13% chance, though if you widen the window to "sometime in 2024," the probability rises to 67%). Some Polymarket bets are spicy: Will a certain bridge connecting blockchains fall victim to an exploit by a given date (a question that garnered more than $100,000 in bets as of Dec. 12, making it the third largest crypto-related market on Polymarket)? Will a certain centralized platform seek bankruptcy protection? At first blush, these reminded me of the insinuations made by newspaper gossip columnists in “blind items” and by internet trolls "just asking questions." Once again, however, the fact that the traders making the doomer forecasts have skin in the game gives those forecasts some weight – though their value as signals is discounted by the small amounts of money involved. Interestingly (suspiciously?) enough, the same bridge exploit question appears on Zeitgeist, a prediction market platform on the Polkadot blockchain network. Zeitgeist also hosts markets on the fallout from the FTX collapse – including whether convicted fraudster Sam Bankman-Fried will get 50 years or more in prison when he's sentenced in March (42% chance, market says) and whether any account on the exchange will sell for more than 60 cents on the dollar before May (30%). Volumes here are even leaner than on Polymarket, in the low thousands per market. (In October, Zeitgeist announced a deal to use market benchmarks from CoinDesk Indices, which is part of the same company that publishes this website.) Given their limitations, it's premature to call prediction markets a complete replacement for other sources of forecasting and expertise. But they're a useful supplement, part of a balanced informational diet. https://www.coindesk.com/consensus-magazine/2023/12/18/what-prediction-markets-are-forecasting-for-crypto-in-2024/