Unchained - $630M Due Next Week: Is DCG at Default Risk? - Ep. 489

Episode Date: May 5, 2023

The Genesis bankruptcy is about to take a high-stakes turn with a $630 million payment from Digital Currency Group (DCG) due by May 11. Barry Silbert’s DCG, the parent company of Genesis, is on the hook for the massive payment, but doubts are swirling as to whether the crypto conglomerate can cover it. Lumida Wealth CEO Ram Ahluwalia joins the show to unpack what could happen to Genesis creditors, Gemini Earn users, and the markets should DCG fail to cover its debt obligations. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights: whether DCG will be able to pay its debt to the Genesis bankruptcy estate the ways DCG can “plug the hole” what the likelihood of DCG filing for bankruptcy is how FTX’s intent to claw back $3.9 billion from Genesis would affect DCG whether Gemini Earn customers will be made whole why Ram says that asymmetric information has plagued the bankruptcy process whether the creditors should accept the latest term sheet how the Grayscale lawsuit against the SEC could impact DCG’s cash flow Thank you to our sponsors! Crypto.com Railgun DAO  Stader Labs Guest Ram Ahluwalia, CEO & Founder of Lumida Wealth Previous appearances on Unchained:  ​​Genesis May Be Facing Bankruptcy. Could It Take DCG Down With It? Gemini vs. DCG Is Heating Up. Could Gemini Force Genesis Into Bankruptcy? How Will the FTX Collapse Affect Silvergate? A Bear and a Bull Debate How Is the Fed Going to Respond to the Banking Crisis? Links Unchained: FTX Moves to Claw Back $3.9 Billion From Genesis Reuters: Crypto group DCG says bankrupt unit Genesis' creditors renege on deal CoinDesk:  Genesis Files for Mediator Assistance Over Amount of DCG Contribution to Reorganization DCG's CFO Steps Down as Crypto Conglomerate Repays $350M Loan Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor, Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the May 5th, 2023 episode of Unchained. Stater Labs is a multi-chain liquid staking platform with 40K-plus D-Fi partnerships across six chains. Soon they'll be coming to Ethereum with their LST-EthX. stateorlabs.com slash eth to sign up for their eth-x alpha list. With the crypto.com app, you can buy, trade, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description. Ever wanted to use defy without being tracked? Railgun is a leading defy privacy solution on

Ethereum, BSC, Arbitrum, and Polygon. Shield your funds and use them privately in your favorite Defy apps, while Railgun's cutting-edge zero-knowledge system encrypts your data from public view. Yes, that includes dextrating. Visitrailgun.org or use the Railway app at Railway.xy-Z. Today's best is Ram Alawalia, CEO and founder of Lumida Wealth. Welcome, Rom. Thanks for having you, Laura. Good to see you again. On April 25th, DCG announced via a statement on Twitter that a subset of Genesis capital creditors have walked away, two months after what they call. a comprehensive settlement, was submitted to the bankruptcy court. I spoke to a Genesis creditor who is in this group, and they said they felt that this was mischaracterized, that the two sides

didn't have an agreement, but just a framework for what a deal could be. This person also said that this framework had been made with limited financial information and that the group revised the terms based on new information and analysis. Either way, Genesis requested a mediator to help resolve the issue. Meanwhile, DCG owes Genesis $630 million next week. So what do all these recent developments mean for Genesis and DCG? Well, it's an unfortunate mess. So, you know, at the outset of the petition, the council are presenting DCG and Genesis, as well as the creditors, informed the jobs they expect a speedy resolution because they've been working at this. And this is a.

a step back. There was a term sheet that was published that outlined the key terms of the deal. It was a framework for the deal. As you mentioned, the ad hoc creditor group has pulled back or walked away from that, as you said, due to new information. There's a lot to unpack and what information they learned as well as still what significant information is outstanding. So how are you looking at all these developments? Like, what do you think is likely to happen at this point, especially given DCG's debts to Genesis next week, do you think it's likely they'll be able to pay them? I don't believe they'll have the ability to make the debt payments. There are $630 million due on dates ranging from May 9th, May 10th, and May 11th, $631 million.

DCG reportedly paid off the senior credit facility to Eldridge recently. That means they have less cash to meet these obligations. But we also don't have much information. We do not have access to the DCG balance sheet. We know that they published financials. Recently, they've generated more revenue because the price of Bitcoin has increased. However, even the free cash flow, one would expect that Grayscale would generate is insufficient to plug the hole. I estimate something like, $117 million in cash flow from grayscale. That's just not enough to plug a $630 million hole. Here are the other reasons, too. You know, you have some reporting that the CFO Michael Crane's left. That is a negative sign. That's a red flag. You're also seeing DCG port coes like Luno,

there are various executive departures. We haven't seen new venture investments from DCG, or it stopped entirely. the three ways to plug a hole. Either you generate capital from operations. Again, I don't see enough of that there from Brayscow. Second, is you sell assets. There's been no sale of any of these prize jewels of DCG. Third, is you do a capital raise, haven't seen that announced, and they haven't done a debt refinancing. So unless we see someone else reported around that, I just don't see how they're going to make their debt payment. And so if that's the case, then it looks like what a bankruptcy for DCG would also be on the table? Well, they'll attempt to do an out-of-court workout. It's very similar to what happened when Genesis announced that they're not honoring withdrawals. So there's no imminent bankruptcy. You attempt to do an out-of-court workout.

You attempt to negotiate with their creditors and arrive that favorable terms. But guess what? That's what they have been doing over the last several months. So this is, you know, they'll have to continue to negotiate. And there's a strong interest that creditors have in preserving the ongoing value of DCG and seeking a settlement promptly. It's not an interest for creditors to hurt the ongoing concern of DCG that doesn't help. The creditors doesn't help DCG. And so what factors are you looking at to determine like how likely it is that they will end up?

having to file. Well, let's let things unpack. Let's see what actually happens next week. I think the first thing I'd look for is May 9 is that $2 million loan payment made or not. If that's not made, none of those payments are going to be made. By the way, I don't think you're going to see a scenario where DCG makes partial payments. Either they husband the liquidity or they meet all their obligations. So May 9th is a key date to focus on. Let's see what happens there and let's reassess. Also, we don't have access to the contracts and the loan agreements. So we're making the best adjudctions we can based on publicly available information. I should also say that I'm not a party to any of these transactions, I'm not a creditorgenesis, not offering financial advice.

I'm simply trying to get a point of view on what this does for the for GBTC, the spreads, the price of Bitcoin, etc. So one other wrench that got thrown into the works is that late Wednesday, FTA, signaled its intent to try to claw back almost $4 billion in funds from Genesis. How does that affect matters? Right. It's an unfortunate surprise. It's a surprise because, you know, F-TX several months ago under John Raines, he had a slide indicating the course of action he would take to seek recoveries.

And the Genesis claim was not on that slide. That's one. Second, it's been a lot of time. Months have fast. Of course, the last day to file any claims is the what's called the bar day. That's May 25th. And so we've seen this claim come in for $3.9 billion. That does change the recovery, particularly the recovery for Genesis direct creditors. I think they're in a different position than Jen and I earn will come back to that. However, Genesis can argue the ordinary course of business defense. So that defense is, you know, used as a way for creditors to protect themselves from having to return a preferential payment to the debtor. There are two standards they have to meet to RD for this defense. One is that that payment was made in the ordinary course of the business or the financial affairs of the

debtor of a predator. So a margin call would be in the ordinary course of the business operations or calling back a loan due to risk management concerns. And the second thing you have to show that's according to the ordinary business terms. So it's really a legal analysis question, but I would say that there's credible grounds for Genesis to dispute that that has a legitimate claim. We love to see that plays out. And it may simply be the case of the FTX trustee is seeking to turn over every single rock to maximize their recoveries, even if the probability of recovery is not high. Do you feel then, that Genesis has kind of good arguments to fight that? Or how likely do you think it is that they'll have to?

I believe they do. They do have good arguments, despite it. However, it really is a, you really need a lawyer that can look at prior settlements and have experience in commercial litigation has looked at any prior case law that's relevant to this matter. But what I've looked at is what are the two standards? They seem to be bad. At the same time, though, I have not seen those contracts. I have not seen how often Genesis is. called in loans in the ordinary course in their business. So those facts would matter to that analysis. All right. And then as you mentioned, the Genesis creditor group also includes the Gemini earned creditors. How did the objectives of these two groups either align or diverge? This is really interesting. This is a breaking news, new development. I hadn't appreciated this before. Happy to show that with you now. First, I think the Gemini earned creditors have a path to being made whole quickly and promptly as well. And it's were two reasons. One is the security agreement. So in August of last year, Gemini insisted on the security agreement and that

security was in the form of GBT that was pledged to Gemini. And that's $62 million in GBT. So that's one. And the second is Gemini has offered up to $100 million. if the Gemini Earned pool accepts the plan. Now, right now the plan's up in the air because creditors from the ad hoc guru have walked away. So I do think they have a path to recovery, and that's terrific news. However, the direct creditors to Genesis, particularly the top 75 creditors that compromises so-called ad hoc group, they don't benefit from that security agreement. and they're also not going to benefit from the Gemini Earn sweetener that up to $100 million to waive these liabilities in exchange for that.

They are negotiating some other sweetener from DCG. And so these two groups are at odds. Now the second question, though, would be like, what's the voting decision making look like? So you need two-thirds of the notional debt balances to grant a deal and a majority of the creditors to agree on the deal. So the top 75 creditors to Genesis, they have about 62% of the votes. They're not enough to get there. Gemini Earn can swing the vote easily, but the Gemini Earn wants a deal that's on the table today. They want liquidity yesterday.

So there's a conflict of interest between those two groups. All right. So in a moment, we're going to unpack this situation between Genesis and DCG a little bit more. But first, a quick word from the sponsors who make this show possible. Meet Stater Labs, the non-custodial multi-chain liquid staking platform transforming the liquid-staking landscape. With over $120 million in asset staked and more than 40K users across six chains, Stater has partnered with 40-plus top D5 protocols like AVE, Balancer, etc. With a unique multipool architecture and tokenomics, ETHX, their liquid staking token on Ethereum,

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Back to my conversation with Rom. So when you look at what's happening between Genesis and the creditors, who do you feel is like in the right? Or, you know, who do you feel will more likely prevail? You know, I think there are a lot of misunderstandings here and there's these asymmetric information problems. And the gain theory is broken is my headline. Okay, let me walk you through that and why these misperceptions have created, you know, this dragging out scenario here. So first off, the creditors, particularly the ad hoc creditors are upset because they view

these DCG Genesis transactions as not arm's length. Remember that $1.1 billion loan at a 1.1% in straight payable in 10 years. It's not arms like. It's not market terms. And they're correct about that. they also feel that they have evidence of allegations of fraud, of accounting fraud, on misrepresentation. You recall Cameron Lecoe Voss said that there was quote unquote unconscionable behavior in December.

The other part is that, you know, the four CEO of Genesis, who resigned on the petition of the filing, in the evidentiary hearings, he used the term we to refer to both Genesis and DCG. So people are, you know, creditors are saying, like, who are you representing? Are you representing Genesis' interests or not? And then the other very odd is the Genesis Council asked the judge if the DCG loan obligations, the May payments due next week, could be put in forbearance during the mediation term. So why was Genesis counsel advocating DCG's interest? So you can see why that ad hoc credit committee feels aggrieved and upset. However, here's where I think they're making mistakes. One is the $1.1 billion loan has essentially allowed these creditors to breach the veil.

And these creditors want to breach the veil and go after the BCG mothership. But they've already done that. BCG has already offered in the term sheet to restruct the loans, pay a higher interest rate, pay those loans sooner, saying fast recovery, and the creditors have upside on the sale of certain digital assets. So there's even a conversion option of debt to DCG equity, between 20% to 40% as well as a path to short seats on DCG. So in an ordinary bankruptcy, the recourse is limited to the assets of the debtor, in this case Genesis, right? Genesis is a limited liability organization, and DCG has already offered up value over and above that. So, you know, I think the asymmetric information problem is this. Like, no one has seen the DCG balance sheet. And if you're

a creditor from Genesis, you're saying, okay, I know the cash flow from grayscale. Gray scale is the cash count, Bitcoin's gone up in value, and why don't we seek recovery on that? And that can happen over time. The problem is that you can't get enough payments soon enough to make the creditors whole. I don't believe that Genesis can be made whole on their made payments. So it's an extraordinary form of bargaining leverage that the creditors have, but putting BCG through a potential default scenario is going to create yet another legal proceeding. So, you know, something like, call it, $50 to $100 million have been spent on legal fees here. Yeah, I don't think that's in anyone's interest. I think the term sheet that was advanced most recently is quite reasonable.

You know, it's very unusual, again, to go beyond the. estate here. And even if you acknowledge that perhaps there was some accounting fraud, you know, this isn't the first time investment banks have committed in proprieties. And you don't generally see 20% of equity being given to the claimants. There's a settlement. There's a report of something that's neither confirmed nor denied. The parties move on. And you have to deal with the realities of the situation. It's like squeezing blood out of a rock. And it's not in the interest of DCG to publish those balasheed financials either. So I think this mix of emotion and misperception is causes us to drag out.

And the lawyers are benefiting. And it's a really unfortunate situation. And how common is this type of situation between Genesis and the creditors where they kind of seem to come to some sort of an agreement and then things fell apart? You know, it's unfortunate and it's disappointing and frustrating. Now, recall prior to the petition, the parties were negotiating, and they went before a federal judge after the petition date, and they expect an expedient resolution. That was one.

Second, they published a term sheet, and the term sheet is a framework for the deal, and then, you know, the ad hoc creditor group, you know, walked away. So the lawyers have a responsibility to leave. lead and manage their clients as well. The motions are high. The stakes are high. And I'm disappointed in the lawyers. If you're publishing a term sheet of that should be a bona fide deal. You should not be publishing a term sheet unless you feel like you've got a credible commitment from your client. If you feel like you need to gather more information, then don't publish the term sheet. And, you know, the legal fees here are significant, and that reduces the distributions, the recoveries from the

size of the pie. So it almost feels like you think the creditors should agree to the latest terms? I think it's a very reasonable term sheet that balances the interests. If you were to tweak one thing, like I think this funding only comes on to a lack of trust. DCG has lost trust with that ad hoc creditor committee group. So for those two board seats that are contemplating the term sheet, instead of making those independent board seats, perhaps those board seats can be appointed by the ad hoc header committee group. That might be a way to split the baby and create trust. Now, the DC sheet board's

not going to want that. So perhaps what the Genesis ad hoc creditor community can do is advance a slate of potential board candidates, including the creditorial. themselves or or not and then have DCG assess interview that's why. That might be a path forward to create trust. All right. Well, we will have to see what happens. I think there's a big meeting the day this comes out. So I'm sure there's going to be more developments in the next few days. One other thing that I wanted to ask about was the gray scale Bitcoin investment trust has been a cash cow for gray scale, which is one of the companies in DCG's portfolio. And And it's currently, Gray's Gale, it's currently in litigation with the SEC to turn GBT

into a Bitcoin ETF. And if that happens, then that would cut fees for them. So if the judgment is in favor of Grayscale, which at the moment it sort of looks like it will, how does that affect the picture for all of these other proceedings? Yeah, it's another monkey wrench. On the one hand, you know, you would want Grayskill to prevail in their litigation against the SEC. That would unlock the so-called Hotel California. At the same time, one would expect to see significant amount of redemption activity as customers move to lower-cost ETF products that presumably would also be approved on or around the same time. There are something like seven ETSs that are on the docket, including offered potentially by Doug Gemini and Vanek.

But what that would mean is that it hurts the cash flow generating power, you know, the number one crown jewel of DCG, and that would hurt the ability of DCG to honor its loan obligations and make creditors whole. And this goes back to the bar point. So if the ad hoc credit community group waits another year for another process to unfold, that creates more risk on recovery. Grayscale is a melting ice cube.

They have melts right now at a 2% rate per year. That's the fees are extracted from the truck. and there's no more Bitcoin getting pledged in the trust since it's got a discount N.A.V. But if that ETF is approved, that melting ice cubes got a hot hair blowing over it. It's going to melt very rapidly. And that's the cash flow generating power. So, you know, they really need to ever to expedient resolution swiftly. And the other side of this is from various perspective. On the one hand, the higher the price of Bitcoin, the greater the capital generating power

of gray scale and to make these crepus whole. On the other hand, it means that DCG has to pay out more next week. So that last payment, that May 11th payment, DCG is short 4,550 Bitcoin. So the amount owed on that last date has gone up from where it was in December, like 68 million to now, it's like hard 30 million. So it's a really odd situation for DCG where in a way they have to hope that the Bitcoin price drops next week and that shoots up, you know, sometime after that. Okay. And one last thing is, so we're watching for the May 9th date, what happens on that date. We're also watching for the Bitcoin price. What else would you advise people to watch for in the next week to see how this might all play out?

So there are a few things. One is there was an independent investigation mission by the Genesis special committee, they retained clearly gotly a former U.S. Southern Restricted Paterney. These are the best, these are the VATItsa Tertami's Hotbedder. And they were going to investigate the proved partition transactions and other allegations. We haven't seen any findings or report of that. Now, in the docket, it was indicated that at a summary report we made available to the public, I have not seen that. I'd like to see that.

Perhaps some of the findings from that report is the reason, why the ad hoc credit committee has pulled back. I have no incentive to that, public does have an incentive to that. So that's one. The second is DCG, you know, the number of questions there. No one has seen the DCG balance sheet. And they're looking at the top spot. If they were at least a balance sheet, it can make their situation perhaps more challenging in terms of their negotiation. The other part I'd want to know is like, what is the net equity position of DCG? and is that the reason why they may not have been able to refinance their loans or obtain an equity infusion, notwithstanding the threat of litigation and other lawsuits flying around?

And the reason I call that out is, you know, in August DCG pledged GBT to Gemini Earn, good move Gemini Earn for securing that collateral, as I mentioned. However, on November 16th, that collateral was foreclosed upon and liquidated, and that could have caused an impairment to the DCG balance sheet. So I'd want to understand what is in that equity position of DCG. I'd also understand what GBTC is held unencumbered, meaning not pledged to Gemini Earned, and what's the value of that DCG balance sheet. in the end of Q4 financials, DCG and Coigness reported some very summary statistics. They said there's something like $600 million in the investment portfolio.

What percentage that is illiquid venture? What percentage that is liquid securities? We need that to get a definitive analysis on the ability for DCG to generate its liquidity and meet its obligations. So I think those are the main ideas. that, you know, you want to look out for it. And so if they make like partial payment next week, what happens? Is that not a thing?

Well, I think it makes sense to like a partial payment. If they make a partial payment, then they're not much cash for them. There's a reason to think in the partial payment. Either you pay off all your bills on time, when do, or you don't pay any of them. And I think we'll learn which state of the world we're in on late night. Now, again, I don't have access to the terms. I don't see what the consequences of not paying these are, you know, these are well-negotiated agreements.

So I expect that the consequences would be severe for non-payment. Well, what happens if you don't pay? You get kicked out to an out-f-court workout. So in the same position there on today, in a sense, negotiating. The question would be, would any of the creditors seek to pressure BCG by filing an involuntary petition for Chapter 11? It only takes sleep betters to perform that action. So DCG could be in a tough spot.

You know, another way to look at this is DCG has their own duration in this match. You know, I've talked about this in various podcasts before where DCG has this asset called gray scale, this other asset called Boundary and Luna and Blue Ellen Coin Desk. They generate cash. They generate cash flow forward time. And DCG does not have that time. They have these payments that are due next week. And the way generally you saw these duration mismatches, you get financing for that cash loan, for that asset.

We have not seen a point of that. The CFO left. So, you know, not a good sign. I think things to look for in the markets would be, I would expect this spread for GBT to widen. I would expect that the digital assets that DCG owns on its balance sheet. I would expect that those assets, you know, sell off. because the market may expect forced selling from DCG. And we saw some of that in November, December.

However, you know, we don't know. If DCG chooses not to pay the May plummets, you know, they might not actually sell those assets. So we'll see how things unfold and, you know, it'll be jaded. And just to be clear about what you're saying there, you are saying that perhaps Grayscale might sell the Bitcoin in GBTC? Well, so DCG, it'll be DCG. scale won't sell anything. Grayscale is a fine business. They're litigating the SEC.

They're seeking to convert to an ETF. But DCG in the run-up to the three-horse capital collapse, they acquired $760 million worth of GBTC. On leverage from GENDS of subsidiary. Now, good chunk of that is already to pledge to E. Gemini Earn. However, there's strong on-encumber component, meaning it has not been pledged, it is on the DCG balance sheet. And that is a source of liquidity for DCG. DCG can sell that to generate proceeds to pay some portion of this certain of $30 million in loan, not enough based on my analysis. But if DCG does need to sell that, then you'd expect a slippage. You'd expect to see market impact. Remember, In November, it was reported that Gemini, in November 16, when they foreclose on the collateral,

they did a block sale on GPTC, and it did create a market impact. And, you know, DCG has to make a decision on whether or not they want to sell those assets. And we also don't know, do they already sell those assets? Now, based on the most recent 10Q file from Grayscale, it does appear to be. the case that DCG or Genesis still has a material amount of DBTC on the ballot sheet, something like $2,40 million plus or minus on the ballot sheet. All right. Well, this is clearly a very, very sticky and entangled situation.

Thank you so much for unpacking it all. Thanks for having. Appreciate it. Thanks a little. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Ever wanted to use Defy without being tracked?

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railway app at railway.xy-Z to find out more. Thanks for tuning into the speaks news recap. White House proposes crypto mining tax. The Biden administration is pushing for a tax on crypto miners equal to 30% of their energy costs. The purpose is to cover the, quote, harms they impose on society. according to the White House's Council of Economic Advisors. The digital asset mining energy tax could generate up to $3.5 billion in revenue over the next decade, but Republican opposition may hinder its progress. Nick Carter, founder of Castle Island Ventures, tweeted, I know politicians focus only on first-order effects, but it bears repeating for the endth time.

Discourging mining in the U.S. would directly increase emissions associated with Bitcoin mining. In other news, Bhutan's investment arm, Drick Holding and Investments and Ji Han Wu's Bit Deer Technologies, planned to jointly raise up to $500 million for a crypto mining fund. Ujwal Deep DeHal, CEO of DHA, stated the partnership aims to create a, quote, carbon-free digital asset mining data center and foster a, quote, sustainable domestic economy in Bhutan. As the U.S. Titans regulations on the crypto industry, the Blockchain Association,

a crypto advocacy group, is shifting resources. out of New York State to focus on federal policy in Washington, D.C. This decision follows New York Governor Kathy Hokel's signing of a law banning fossil fuel-powered cryptocurrency mining in the state, making it the first state in the U.S. to do so. Coinbase succeeds expectations in Q1, but faces legal issues. Coinbase outperformed analysts' expectations in the first quarter of 2023, reporting revenues of $772.5 million. significantly surpassing the estimated $653.84 million in revenues. Despite slightly lower trading

volumes, transaction revenue also exceeded forecasts, reaching $374.7 million against an expected $318.5 million, highlighting continued growth in the crypto exchange market. Quote, we are pleased with the pace of innovation and the results we are seeing, said the exchange on Twitter. The stock was up 8% following the earnings release. Despite that good news, earlier in the week, Coinbase faced two legal complaints. The first one alleged the violation of Illinois's Biometric Information Privacy Act during its Know Your Customer checks. It claims that Coinbase's KIC procedures are, quote, unlawful, due to the lack of user protection against identity theft.

The second accuses its top executives of making over $1 billion through Coinbase's direct listing by not disclosing before the company's shares went public, negative information, such as that the company's revenue was being compressed, or that it planned to do an additional $1.25 billion private sale and new convertible notes that would dilute existing shareholders. Coinbase denies both allegations, calling them, quote, frivolous and meritless. In other news, Coinbase announced the launch of the Coinbase International Exchange,

allowing international users to trade perpetual futures out of Bermuda. The platform will initially offer Bitcoin and ether derivatives with 5x leverage, with more listings planned for the future. This move comes amid a bitter dispute between Coinbase and U.S. regulators as the company seeks to compete with other crypto exchanges in the offshore derivatives market. Economist and crypto analyst Alex Kruger tweeted, U.S. regulators are succeeding and pushing crypto abroad. surprising revelations about Crypto Bank Partigo Trust denied application. A recent investigative report by New York Mags, Jen Vietner, has unveiled new information about

crypto bank portico trust application with the Office of the Controller of the Currency, the U.S.'s chief bank regulator, which had previously been denied. Valued at $2 billion, Partigu had received conditional approval in 2021 and raised over $100 million from major crypto companies, including Coinbase. An anonymous source familiar with the matter has now revealed that the denial was due to a technicality that the regulator had never before mentioned to Protigo. Despite securing the necessary funding before the deadline, the OCC stated that the reason for denial was that the funds were not physically in the bank. However, Protico was previously

informed that the money transfer was required only four days before the official opening. Protico founder Greg Gilman said, quote, we courted regulation. We did everything that was required, In the end, it feels like there was an unannounced and unexplained policy change that derailed our efforts. This situation, along with others, seems to be another data point that the theory that there's a coordinated effort to cut the crypto industry off from the banking sector, which is dubbed Operation Showpoint 2.0, has merit. Former OpenC executive found guilty of insider trading. In a groundbreaking verdict, Nate Chastain, X head of product at non-fungible token or NFT platform open.

C has been convicted of money laundering and wire fraud in a federal court in New York. Chastain was accused of profiting from insider knowledge, making over $50,000 between June and September of 2021 by purchasing NFTs he knew would be featured on OpenC's homepage. He would then sell them after their prices had jumped. To cover his tracks, Chastain had used anonymous wallets and accounts. U.S. Attorney Damien Williams stated, quote, Nathaniel Chastain exploited his advanced knowledge of which NFTs would be featured on OpenC's website to make profitable trades for himself. Williams emphasized that despite the case involving digital assets, Chastain's actions were nothing

more than fraud. Prosecutors filed charges against Chastain in June of 2022, marking the first insider trading case involving digital assets. Chastain now faces up to 40 years in prison. Celsius founder fights New York fraud allegations. Former Celsius Network CEO, Alex Mishinsky has filed a motion to dismiss the New York State complaint against him, which alleges securities fraud and accuses Mishinsky of making false and misleading statements about the safety of assets deposited with Celsius. In his response, Mishinsky argues that the crypto products offered by Celsius were neither securities nor commodities, and blames the company's failure on other forces, such as the Terra-USD stablecoin collapse. Meanwhile, Celsius and its creditors are seeking

to merge its UK and UK entities, alleging that the distinction between the two was a, quote, sham, and resulted in billions of dollars being fraudulently transferred between them. The company argues that the two entities should be treated as one for bankruptcy purposes, which could prove crucial to recoveries for customers and Series B investors. Poloniacs settles sanctions charges. Crypto Exchange Poloniacs has agreed to pay a $7.5 million fine to settle a civil liability lawsuit, concerning apparent sanctions violations. The U.S. Treasury Department's Office of Foreign Assets Control alleged that Polonics allowed customers from Crimea, Cuba, Iran, Sudan, and Syria

to trade $15 million worth of digital assets on his platform between January 2014 and November 2019. If you want to learn more about this, read my book, The Cryptopians. In a statement, the department emphasized that all financial services providers, including online digital asset companies, are responsible for, ensuring compliance with OFAC sanctions. Layer 1 blockchain suey launches main net. Suey, a layer one blockchain developed by Mistin Labs, launched its main net on Wednesday. Here's unchanged reporter Sam Shri Rum reporting the news from a video we released that day.

Sui is a designated proof of state blockchain that runs on a modified version of move, a rough-based programming language that was created by developers working on Meta's DM blockchain initiative. The project was actually founded by four former meta engineers who created the entity behind the blockchain missed in Labs in 2021. So far, the firm has raised $336 million over the course of two funding rounds and is valued at $2 billion. Blockchain boasts a peak throughput of 297,000 transactions per second and a network

of 100 globally distributed validators. The scope for this high-speed blockchain to run a new range of decentralized applications is perhaps one of the reasons why it has garnered immense support from the crypto community. Justin Senn refers to multi-million dollar transfer after warning from CZ. Tron founder Justin Sun has reversed a $56 million true USD transfer to Binance's launch pool after getting called out by Binance CEO Cheng Peng Zhao. The significant transfer raised concerns that it would be used to buy up large amounts of sui tokens, which were meant to be air drops for retail users rather than concentrated amongst a few whales, according to CZ. In response, Sun explained that the funds were inadvertently transferred by team members who were unaware of their intended purpose,

and that their primary objective was to enhance liquidity and trading volume between leading TUSD exchanges. Finance later confirmed the refund and reallocation of the 278,752 farmed suey tokens to its TUSD liquidity pool. Blur unveils new protocol for NFTs. On Tuesday, NFT Marketplace Blur launched a new protocol dubbed Blend to boost liquidity for NFTs. I interviewed the company founder, Tishun Rocare, who goes by Pac-Man. Here's what he said. Why is it that blur decided to launch NFT borrowing? Right now in NFTs, there's pretty much no financialization.

So, you know, there's billions of dollars worth of NFTs trading every month. But there's absolutely no, you know, pretty much zero financialization at all. If you look at most financialized markets, like the housing market or the crypto market, you know, every big market grows through financialization. So even if you look at like Bitcoin, for example. 90% of Bitcoin volume is from derivative volume. It's not from, you know, spot volume. Similarly in the housing market, it's, you know, the majority when people buy their houses, they buy it with a mortgage. They don't pay all the money up front. And NFTs today,

we're still at the very early stage of this market where there isn't any sort of financialization. Dubai regulated reprimands three AC founders. Dubai's virtual assets regulatory authority has issued a written reprimand to three euros capital co-founders, Suu and Kyle Davies, along with three others, for operating and promoting their new digital asset exchange, OPNX, without the required local license. The regulator stated it will continue investigating OPNX's activities to determine if further corrective measures are needed. The exchange, which launched last month, has been offering virtual asset exchange services without proper regulatory licenses, according to a statement from the regulator. Bologi Srinivason closes Bitcoin

bet early. Former Coinbase CTO, Bologi Srinivossin, has prematurely settled his bet that Bitcoin would reach $1 million within 90 days, donating a total of $1.5 million to three different organizations. Srinivossin made the bet after consecutive bank failures in March, predicting the U.S. dollars collapse and hyperinflation would propel Bitcoin's value. The bet was closed with mutual agreement and Srinivossin donated $500,000 in USDC to chain code labs, give directly, and Twitter user James Medlock. The entrepreneur said, quote, I burned a million to tell you they are printing trillions, referring to the Federal Reserve led by Jerome Powell, which this week raised interest rates by 25 basis points one more time. Time for fun bits. PayPal announces that Venmo users will be

allowed to trade crypto. Unchained Jenny Hogan gives her take on this news. So PayPal has announced that it's going to let users begin trading crypto on Venmo. Why is PayPal allowed to do this? Well, because they own Venmo. Decentralized icons for the win. In the number of people who think crypto is a scam, I do love the idea of being able to passive-aggressively send money to someone. I feel like this is going to be huge on first dates. Like, hey, have some of this money you don't believe in. But it could be big. I mean, 74% of Venmo customers have held crypto in their accounts for the last year. To be fair, the last year hasn't been a great time to sell crypto, but BEMO is going to cap crypto coin purchases at $50,000 a year annually. This is intended to ensure

responsible trading, risk management, and to limit the number of tweets that start with, I lost my life savings trading crypto on Venmo, a thread. Venmo is in many ways the perfect place for crypto, since you can't make a Venmo transaction without saying what the transaction is for, and no one should buy cryptocurrency without being able to explain why. I don't try Dogecoin until you're absolutely sure that therapy is not going to work. Thanks so much for joining us today. to learn more about ROM, Genesis' negotiation with creditors, and how all this affects DCG,

check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Kevin Fuchs, Matt Pilchard, Zach Seward, Juan Aranovich, Sam Shryam, Ginny Hogan, Jeff Benson, Leandro Camino, Pamma Jimdar, and Shishonk. Thanks for listening.