Unchained - Are All Crypto Funds Basically Engaging in Illegal Activity Now? - Ep. 700

Starting point is 00:00:00 We are kind of getting caught in a trap here where we're required to comply with regulations, but the regulator itself is making it nearly impossible to comply. Hi, everyone. Welcome to Unchained. You're a no hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto nine years ago, and as a senior editor at Forbes, was the first MainTree Meter Porter to cover cryptocurrency full-time. This is the September 6th, 24 episode of Unchained. Where can you find $700 million in real world assets, 11 million daily operations with industry low fees,

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Starting point is 00:01:05 airdrops in addition to native ETH POS yields. This includes exclusive rewards like Eigen and Cook. Check it out at M-Eath.mantle.xyZ slash campaigns. With I-Trust Capital, you can buy and sell crypto in a tax-advantage retirement account. Enjoy significant tax advantages, 24-7 access, and the industry's lowest fees. Pocod is the original and leading layer zero blockchain with So for 2000 plus developers, and the Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Join the community at Pogo dot network slash ecosystem slash community. Today's guest is Larry Florio, General Counsel at 1KX, a crypto-focused investment firm. Welcome, Larry.

Starting point is 00:01:49 Hey, Laura. Thanks for having me. This week, we got news of an interesting enforcement action by the SEC against Galois Capital, a trading firm that went under because a significant portion of its funds were on FTEX. What was this enforcement action about? So there were a few different parts to this. Some may be more surprising than others. I think one of the primary things that was happening here was the SEC claims that they were holding tokens,

Starting point is 00:02:17 and this is the specific language out of the settlement, tokens that were offered and sold as securities. So there's a little bit of a change from what we've heard from the SEC before. But as part of that, the SEC claim that Gowal Capital was holding these tokens that were quote-unquote securities, not with qualified custodians, which is a requirement for all registered investment advisors. And what was the previous language? So very often they would say crypto asset securities and sort of leave it there, rather than here they've added more nuance to it than they typically do, saying the tokens were offered and sold as securities. So tokens maybe are not per se securities, but were being quote unquote offered and sold as them. Okay. Yeah, it's almost like they're incorporating some of the criticism from, for instance, like, am I right, that it would be like the ripple ruling or what would be? Yeah, that's right. It's a little difficult to even really pinpoint what the SEC's internal theory is on this, since from case to case when they actually go to trial, they've sort of changed and adjusted the theory.

Starting point is 00:03:23 and it changes a bit depending on what court they're in. So they've gone with the tokens are securities. They've tried this. They were offered and sold as securities before. It's a little bit all over the map, although this seems like they're focusing more recently on this offered and sold as securities. Presumably they think that's a better winning argument for them

Starting point is 00:03:42 when things go to trial. Okay, but they don't actually name the tokens. Is that correct? That's right. They just sort of keep this, they add this sort of just hand wavy, oh, there were tokens. and some were offered and sold as securities. So they're almost acknowledging that not everything in Galois' portfolio was actually a security,

Starting point is 00:04:01 but that somewhere. We don't know which. We don't know why. We don't know how. And how typical is that for there to be an enforcement action without the actual assets involved being named? Within crypto, it's a little bit of a mixed bag there as well. I'd say that more frequently than not, at least as of over the last couple years, they've named at least a couple of the tokens that they think are securities.

Starting point is 00:04:27 So they'll give a few examples. They're pretty consistent with which ones they name. But here, they don't bother at all. And they have done that, I believe, at least once or twice in the past. But it's frustrating here, especially because they're adding a new implication, a new layer to the attack on crypto, where they are saying now, okay, you're now violating your custodial regulations and requirements as an asset manager. Yeah, so this to me seems to be the biggest kind of upshot from this enforcement action.

Starting point is 00:04:59 So just explain what a qualified custodian is and what the violation was. Sure. So qualified custodian, there's a few different things that can qualify as it. The primary ones that people think about are banks, broker dealers, trust companies, things that, institutions that you would normally consider safe places to hold your money, hold your assets. There's also a bit of a catch-all for foreign institutions if they are the type of institution that would customarily hold customer assets segregated from proprietary assets. So as long as they're in a segregated account off of, except from the company money, they're usually considered okay as long as, again,

Starting point is 00:05:40 like foreign banks, foreign brokerages are typically what's considered to fall into that category. But it's, it's vague almost intentionally because they're not trying to regulate, at least in this instance, the rest of the world and how they handled their financial systems. But just to understand, so in this case where Galois was using fire blocks, which then was using FTCS as a trading venue, would that requirement apply to FTCS itself? Because FTCS claimed that it was segregating accounts in that way. So if it does apply to FDX, then it's sort of like they're punishing Galois for not knowing that FTX was committing a fraud, which seems strange. Yeah, it's definitely strange.

Starting point is 00:06:26 I mean, they do actually call out in the settlement order that FTX Trading Limited, which was the entity of part of the FTX organization in question here, was not a qualified custodian. So they use that as an example. They don't actually name fireblocks at all in this, although Galois did in their thread on Twitter following the release of the settlement, but they don't actually name fireblocks itself. They do focus on FTX, which is a little surprising because obviously we know what happened now, but FTX was a regulated entity in the Bahamas at the time. And on paper, it does seem like

Starting point is 00:07:02 it would be the type of institution that would fall into that foreign institution category within the qualified custodian definition. So it's definitely a little concerning. And one other issue was I saw that Galois said that they had submitted to the SEC that they were using fireblocks. So there was knowledge there of the setup prior. I don't know if that matters. Like, is that something that the SEC would or should have flagged at that time that it was filed? I would think so. I mean, so the filing where they listed that is what's called a Form ADV.

Starting point is 00:07:34 It's a publicly available filing that all registered investment advisors have to submit to the SEC. Anyone can go online and look those up for any registered investment advisor. And in that filing, you always have to list which, custodians you're using for fund assets. So it's very common. You typically see the large, well-known banks are very common on their brokerages. Fireblocks itself is actually not, it's not surprising that they are included there. There's lots of crypto asset managers that do use fireblocks, and they typically do disclose it on there

Starting point is 00:08:08 because within our industry, there's different risks with different concerns. So qualified custodians aren't always actually the safest place to hold crypto assets. digital assets, but fireblocks provides a lot of similar sorts of protections, more focused on the risks of crypto. And so they're really commonly used. They are very frequently disclosed there. So it's a little surprising to me, yes, that they didn't mention fireblocks and that it seemingly never came up, but you would think during this process.

Starting point is 00:08:43 Now, these settlement orders are pretty heavily negotiated. The language goes back and forth between the two parts. a lot, but I'm a little surprised that the SEC didn't want to name fireblocks in there also. There could be reasons for that, but I was a little shocked to see that or rather than not see that. Okay. Yeah. Well, there was, I would say, a fair amount of outrage about this enforcement action on

Starting point is 00:09:09 Twitter. And obviously, you know, with the SEC, with any enforcement action that they pursue on crypto, there is generally some outrage. I saw a lot of people talking about kind of like inherent contradictions in what the SEC had done here. For instance, Jacob Franick of Alliance Dow tweeted, let's review how egregious this is. The SEC requires RAs to custody with qualified custodians, but says there are none, and it blocks new entrance from becoming qualified custodians, and thus it can penalize any crypto RIA whenever it wants. do you agree with his assessment of that? Is that what's actually happening?

Starting point is 00:09:51 I do, actually. It's a really frustrating state of affairs where everyone's trying to do their best. I mean, there's very few asset managers out there in general, crypto or otherwise, that are trying to avoid these regulations. And the SEC really does come out and effectively say there are no qualified custodians for crypto. And they're taking a lot of steps to try to even reduce the number that we may have out there. So there was that proposal, it may be in effect soon, SAB-121, and that was an accounting standard that was really preventing public companies from custody and crypto exactly for these sorts of situations. So we are kind of getting caught in a trap here where we're required to comply with regulations, but the regulator itself is making it nearly impossible to comply. Well, okay. And just to clarify, I saw some people think that Coinbase in Anchorage are qualified custodians. Is that the case? Or like, who in crypto are qualified custodians? It probably depends on who you ask. Coinbase in Anchorage certainly would say that they are qualified custodians. And there's entities in their structure that are licensed trust companies, like licensed broker dealers. They have those entities. And those do fall within the definition of qualified custodian.

Starting point is 00:11:09 it's maybe a little bit more of an open question as to which entity in their structure is specifically holding those assets. I'm sure that they've spent a lot of time internally at these places thinking about that and are comfortable that they are indeed qualified custodians. The SEC hasn't come out and actually said one way or another, whether they are, to my knowledge. And while it's sort of unusual to need a sanity check from a regulator, this is also the situation where we're in, where especially in Coinbase's case, a lot of your audience knows,

Starting point is 00:11:42 they're in the middle of pretty heavy litigation with the SEC right now on a few different fronts, one of those being the SEC claiming that they're acting as a broker without being licensed as a broker dealer. So it seems like there is just a disagreement on what Coinbase even is. And because of this kind of catch-22

Starting point is 00:12:01 about whether or not any of these entities are qualified custodians, and in particular, frankly, just because of the types of tokens it is that these different crypto funds like to trade and, you know, what it is actually available at Coinbase and Anchorage, even if they do end up qualifying. Does this kind of effectively amount to a ban on crypto funds? It kind of does in a lot of ways, unfortunately. Now, there's a little bit of a nuance to this in that not all assets that an asset manager

Starting point is 00:12:34 holds have to be with a qualified custodian. It's only securities specifically. And that's how the SEC is getting us in this case here, where they're not even telling us what tokens are securities. Some are securities. Those have to be held with qualified custodians. And they are really saying, I think you're right, Laura, that, well, you need to comply with these rules, but you can't comply with these rules in this asset class. So really, if you are trying to be a regulated entity in the United States, you cannot touch and trade in these assets. Wow. Okay. And then just to put a finer point on this, what would be the optimal way or what is like a more typical way for the SEC to handle this kind of thing.

Starting point is 00:13:13 What would be very useful in this action that we don't have is how and why the, whether it be fireblocks or FTS or otherwise, how and why these were not qualified custodians. We don't even get that level of detail in here. And it would really only have caused the SEC maybe one more paragraph in a pretty short order to begin with to give us that sort of insight and that information. So here we are once again being. regulated via enforcement, and that regulation isn't even telling us what the regulation is. All right. So in a moment, we're going to talk about a few other small matters regarding this particular enforcement action and then also discuss the C of D.C's enforcement action against

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Starting point is 00:15:34 the new governance token of Mantle LSP, M-Meath holders can start accruing powder rewards under Season 1, Methamorphosis, which will be convertible to cook. Visit mith.mantle.xy-Z slash campaigns to learn more. Back to my conversation with Larry. Another smaller matter to discuss before we close out this Galois enforcement is they also dinged Galois for allowing some investors to withdraw faster than the stated 30-day redemption period. Can you just talk a little bit about what the significance is of that? Sure. Yeah, they do talk about this a bit in the action. I find it a little less surprising

Starting point is 00:16:12 than their issues with their custodial practices, putting aside whether or not I think those are appropriate. But for a long time, the SEC has had a problem with preferential treatment of some investors over others. This goes back to even before Gary Gensler was chair of the SEC. Now, they take issue with it and they brought it up exams many times over at least the last 10 years or so. But the general rule for a fund is that the fund documents control how the fund can operate. And basically every fund document for every fund I've worked with has something in there that the manager of the fund, the general partner, can waive requirements when they want to, whether it be a 30-day notice requirement or something else. So it's always left to GP discretion, whether they can flex on these things or not. I think where it became more problematic in this case is that it wasn't just some third parties.

Starting point is 00:17:12 And it truly does seem to Gawa's credit here that if someone asked for a waiver, they gave it. And they did have this internal policy that as long as you gave us at least five days notice, we'll do our best to redeem you on your request. The issue I think the SEC really had here was that there were affiliates of Galois that were taking advantage of this also. So you've got people who worked with the firm that were getting, in the SEC's eyes, better liquidity terms than outside investors. At least outside investors didn't ask for an exception. So if they just accepted that what it says in the docs is what the actual rule is, then they would never know that they could actually have an extra 25 days to make a request, and the firm would honor it.

Starting point is 00:17:58 I think it's nothing you stayed in here, so this is a little bit of speculation on my part, but I assume that the SEC's issue and why they raised it to enforcement on the liquidity terms point has to do with timing around everything that happened at FTX. But it doesn't say that very clearly in here, so again, that's just speculation. And it's really going to be impossible for us to know unless either the SEC or Galois comes out and gives us more detail. And you're talking about specifically investors who wanted to withdraw ahead of FTX's collapse. That's right.

Starting point is 00:18:28 Okay. Okay. So one other thing is amidst all this, SEC Commissioner Marco Yeda at Korea Blockchain Week said that he actually wants the SEC to define this term crypto asset securities. You know, I don't know if you have any thoughts on his remarks there. I would love that. I mean, I think we're all screaming to the void a little bit that. we would just love to have some clarity from the SEC on what these rules are and how they work. I mean, Chair Gensler very often says the rules are clear.

Starting point is 00:19:00 But in this action, all we get is this hand-wavy, oh, there were some tokens and some were part of a security or maybe not. We don't even really know what's going on there. And they don't, once again, don't tell us even what tokens that they think are securities are. So we're left just blindly guessing. And that's just a difficult place to operate. Once again, I think just a sign that the SEC doesn't want people investing in the space. Yeah, yeah. And frankly, also, even the fact that the fine was $225,000, there's something about that that just made it feel like it wasn't super egregious.

Starting point is 00:19:37 And so it calls in a question of why they spent the resources. In a similar vein, we saw that CFTC this week also issued an enforcement action against Uniswap for what Uniswap's chief legal officer described as, quote, a fraction of a percent of trading. So can you tell us what that enforcement action was about? Sure. In that enforcement action, the CFTC has alleged that Uniswap Labs, which operates the Uniswap front end, the one that most of us are familiar with, was offering levered transactions to people that are not supposed to have access to those sorts of transactions outside of a regulated forum, like a futures market. So they're saying that here, which is really surprising

Starting point is 00:20:23 because first off, the uniswap front end is separate from the uniswap protocol. And the uniswap protocol is itself, open and permissionless anyone can launch a token, create a liquidity pool, and uniswap itself has no control over that. And in this case, it's even stranger because the leverage they're talking about was embedded within the token. I think it's a little debatable whether or not, It was actually, in fact, leverage itself. There were two dissents against this order, and Commissioner Fam actually raised this point specifically that the names of tokens don't have levered.

Starting point is 00:20:56 We don't get into any nuances around where the leverage is or how it relates to uniswap. So this is just a very vague, really unfair action. And I think, again, we're seeing here. It was only $175,000 fine. I think really it's sort of the connecting thread between the two things we're talking about today, Laura, is that here are two firms that are being offered pretty low-ball number fines in the grand scheme of how we see these fines come out a lot of the time. So, of course, they're taking them. Lawyers are expensive, fighting the SEC is expensive. The fines themselves can be easily within a million or billions of dollars.

Starting point is 00:21:33 So when someone's offering you not a get-out-of-jail-free card, but certainly like a discount against your expected cost here, you're going to take it. And I think in both cases we're going to see the CFDC and the SEC use these as precedent that they're going to cite in future enforcement actions in future speeches. And it's really unfair. I don't blame Uniswap. I don't blame Galwa at all for taking these. But I also do expect we're going to see these used against the industry in larger actions

Starting point is 00:22:02 going forward. Yeah. And you know, you mentioned Commissioner FAM's dissent. And she had this very pointed sentence, which was, quote, I am puzzled how we can charge the respondent based upon no evidence beyond the word leveraged appearing in the names of those tokens, which I thought was kind of funny, actually. Yeah. Also, USOP wasn't offering anything here, right?

Starting point is 00:22:27 They're being fined for a token there was unaffiliated with them at all and actually wasn't even available through their interface when in a different CFTC enforcement sweep, this question came up. So they do give them credit for cooperating in the order, but it's just so strange to me that Uniswap Labs is being fined at all for quote unquote offering leverage when it's two or three degrees away that the leverage, if it exists, is even implicitly connected to them. Yeah, which goes back to your theory of potentially using this just as something to set precedent, which can be used later.

Starting point is 00:23:09 I did want to ask a little bit more about Commissioner Summer Mercinger's dissent because, you know, as you just noted, Uniswap was very not only cooperative, but as she cited in her dissent, she said that they, quote, took proactive measures attempting to block trading of leverage tokens. And then she says, in fact, Uniswap blocked the particular tokens at issue in the settlement after the commission's settlement in a previous DFI sweep involving those same tokens. She goes on to say, rather than applauding Uniswap, for being attentive to our enforcement efforts and initiating steps to respond to our approach in policing the defy space. We brought charges against Uniswap covering the period before those particular tokens were blocked from its platform. So, yeah, can you just talk a little bit about what she's talking about there? Yeah, she raises a lot of great points in her dissent also. This is definitely one of the major ones. It's really just unfair. I mean, no one's getting real credit for being a good faith actor in this space. I think we in crypto are often saying that we all want to comply with the rules. We just don't know what the rules are. Even here where presumably

Starting point is 00:24:17 we knew what the rules were, UNSWP knew, and they complied and they took proactive steps, it's just not good enough. It's like how does anyone win in a space that's constantly changing and evolving with technology that's not clearly covered by existing rules when no matter what you do and how good of a citizen you're trying to be, you're going to get punished for it. Yeah, and she says through this settlement, the commission appears to be taking the position that any defy platform could be liable for any and all conduct

Starting point is 00:24:44 occurring on its protocol. The practical effect of this approach is to severely chill the launching of any defy protocol within the United States. So, yeah, very pointed remarks again. At the same time, we saw that the New York Attorney General, Leticia James, is also issuing subpoenas to venture capitalists about UNISWAP. I don't know if you have any inkling what those could be about or just generally if you have any comments on what that means about the direction of regulation on defy.

Starting point is 00:25:12 I think we're once again entering, at least for the moment, of adversarial phase. It seemed like we had a lull there for a little while, especially as the SEC in particular was getting some losses in court. But there does seem to be a new push right now to attack the industry on multiple different fronts. Attorney General James has gone down this road before. It's hard to say exactly what she's looking for here. It could be a fishing expedition. There could be a specific thing in mind that she's trying to get at. But it's not surprising to me, unfortunately.

Starting point is 00:25:46 There's the timing of that right on the back of this settlement. All right. Why don't we just bring it back to also. There's two other things that have been going on in the background that are related. The first would simply be that the SEC has a well. notice to uniswap. So I don't know how you think anything that's going on, you know, this way or that happened this week could affect that, if at all. Sorry, with, with uniswap. With the uniswap Wells notice. Yeah. So I understand it's the SEC.

Starting point is 00:26:15 I don't know if either the CFTC action or the New York Attorney General subpoenas could affect that. Sure. Yeah. I think that and they certainly might. A lot of times there's coordination in the background between different agencies at the state and federal level, there's not always. My, again, speculation here is that the SEC is going to be a little parallel to the CFTC action here. Again, just the front end wasn't involved with the token itself, but was offering these, quote, like a legal derivatives to people that aren't supposed to have access. I would expect the SEC is going to take a similar attack but say that, oh, they were offering tokens that were offering tokens that were offering. and sold as securities, tokens that are securities through the front end, so they're acting as

Starting point is 00:27:02 an unlicensed broker dealer. And the last thing I want to wrap up with is about OpenC's tussle with the SEC, which that came about last week. I don't know if you just want to tie up kind of what you're seeing overall, considering that there was also this Wells notice that OpenC received. Sure. Yeah. It's really frustrating.

Starting point is 00:27:23 I mean, we don't have all the details there yet. the Wells knows is the beginning of the enforcement process, not the end. So again, just wild speculation across the board from everyone on Twitter about what's happening there. But I'm sure it has to do with claims that some NFTs or securities and OpenC's acting as also an unlicensed broker dealer, which is a strange action to bring, I think, especially at this time. I mean, OpenC's business model has been pretty consistent for years. and it's been a very well-known platform for at least as long as that. So to bring in action now, not say like in 2020, 2020,

Starting point is 00:27:59 I think raises some questions about the, what's really happening here? Like what was what investors need protecting now that didn't need protecting three years ago when really all the NFT trading volume was on OpenC? And even separate from that, they did, the SEC did go after Stonework Katz, alleging that their NFT project was,

Starting point is 00:28:21 involving securities. I would have expected something with OpenC to have been made public around that same time since it just seemed like there be some at least thematic consistency there. But now here we are like another year later. And it's just such a strange action, I think, to be pursuing. Again, we're at the Wells notice phase. So this is still got at least weeks or months ahead before there's any resolution to it, whether that's made public or not. So it's just very surprising to me that they're bringing this action now. Maybe not in light of everything we've seen this week, but at the time, I was a little surprised that they were doing it then. Yeah, I saw Jake Trevinsky mentioned that because the fiscal years of these agencies end in September,

Starting point is 00:29:06 that that may be why we're seeing a flurry of these enforcement actions. I think so. All right. Well, Larry, thank you so much for explaining it all on Unchained. Thank you, Laura. Don't forget. Next up is the weekly news recap. Today, presented by one of AI. Stick around for this week in crypto after this short break. Pocodot is the original and largest layer zero blockchain with over 2000 plus developers. The anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Upgrading the infrastructure with eight times higher transaction throughput and twice as fast block times, tailored court time for the needs of every protocol, trustless bridges to multiple

Starting point is 00:29:46 chains, and revised tokenomics with a token burn to reduce inflation. Perfect for GameFi and to build, grow, and scale. Get your Web3 ideas to market fast. Think big, build bigger with Pocod. Join the community at Pocodot.network slash ecosystem slash community. Did you know you can buy and sell crypto with tax benefits in an individual retirement account or IRA? I trust capital makes this possible. But what does this mean?

Starting point is 00:30:15 When you buy crypto outside an IRA, like on an exchange, you face taxes on gains. but in a Roth IRA, gains would be tax-free. I-Trust Capital also has the lowest fees in the industry and 24-7 accessibility. Start now and maximize your retirement savings with I-Trust Capital. Welcome to this week's Crypto Roundup. In today's recap, we dive into Donald Trump's latest crypto venture, World Liberty Financial, and its ties to Doe Finance. We also explore the heated debate between Solana and Ethereum communities over network extensions, and the SEC's warning to FTX about repaying creditors with crypto.

Starting point is 00:30:57 Plus, we'll cover the Federal Reserve's cease and desist order against United Texas Bank, Polygons migration from Maddick to Paul, and the challenges Bitcoin miners faced in August. Lastly, we discussed the Wazir-X hack and a surprising marketing stunt by Near Protocol. Thanks for tuning in to the weekly news recap. Let's begin. Trump-backed Defy Project allegedly based on Doe Finance Code. Details have surfaced about Donald Trump's crypto project, World Liberty Financial, revealing that its foundation may be built on the code of Defy Protocol Doe Finance. According to a Coin desk report, the project, which involves Trump's sons, Donald Jr., Eric, and Barron,

Starting point is 00:31:38 centers around a credit account system on the Ethereum blockchain. The project, initially branded as The Defiant Ones, has been shrouded in secrecy since it was first announced in late August. However, a white paper and a since-deleted GitHub code base indicate that the project closely mirrors Doe Finance, which suffered a $1.8 million hack in July. Despite these revelations, the team has yet to confirm if the final product will incorporate Doe's code. The project will also reportedly feature a non-transferable governance token called WLFI, adding another layer of intrigue. Critics have raised concerns about the project's transparency, given its connections to a previously hacked platform, and the involvement of, several controversial figures. In addition to the credit protocol, World Liberty Financial has expressed

Starting point is 00:32:25 a strong interest in driving the mass adoption of stablecoins. The project team has emphasized their commitment to security, announcing partnerships with top security firms such as Zokio, Fuzzland, and Peckshield. According to a statement from the group, the project's code has undergone thorough reviews by these industry leaders to ensure user safety. The Trump-backed initiative aims to leverage stable coins as a key component in its mission to revolutionize the defy space. Solana's network extensions stir debate among Ethereum supporters. A controversy has erupted between the Solana and Ethereum communities over Solana's introduction of network extensions, which some argue are essentially layer two solutions by another name. Traditionally, Solana advocates

Starting point is 00:33:09 have criticized Ethereum's modular approach of using layer two networks to scale its blockchain. However, Solana is now embracing a similar concept, though it avoids the L2 label, calling these technologies network extensions instead. This shift has sparked debate, particularly among Ethereum proponents who argue that L2S are not parasitic, as some Salana supporters claim. Ethereum investor Ryan Berkman's emphasized that L2S complement the base layer rather than detract from it. Despite the rebranding, the core functionality of these network extensions seem similar to L2S, leading some in the community to see the distinction as mere semantics. Salana's co-founder Anatoly Yakovenko defended the term,

Starting point is 00:33:51 arguing that network extensions serve unique purposes, such as specialized processing, unlike Ethereum's general purpose L2s. SEC warns FTC on repaying creditors with crypto. The U.S. Securities and Exchange Commission has issued a warning to FTX in a recent filing, signaling potential opposition to the bankrupt exchanges plan to repay creditors using stable coins or other digital assets. The SEC also expressed concerns about a discharge provision that could limit the future legal liabilities of the FTX estate. During FTX's bankruptcy proceedings, various strategies have been considered to maximize creditor recovery, including proposals to restart the exchange or distribute claims as tradable tokens.

Starting point is 00:34:34 Despite these discussions, FTX, under CEO John Ray III, has rejected the idea of relaunching the exchange, citing a lack of investor interest. Research firm's split capital suggested this week on X that FTX might ultimately inject around $1.5 billion back into the crypto market. However, Split noted that this amount is significantly less than the $16 billion initially expected. Federal Reserve issues cease and desist order to crypto-friendly bank. the Federal Reserve has issued a cease and desist order against United Texas Bank, citing significant deficiencies in its management of risks related to crypto customers and foreign correspondent banking. An examination in May 2023 revealed shortcomings in the bank's governance, particularly in its anti-money laundering compliance and oversight by its board and senior management.

Starting point is 00:35:24 The Dallas-based bank, which has ties to the crypto industry, has agreed to the order and is now required to file a detailed action plan within 90 days to strengthen its AML programs. 21 shares Etherium's wrapped Bitcoin market. 21CO, the parent company of 21 shares, has introduced a new wrapped Bitcoin token 21BTC on the Ethereum blockchain. This move follows the earlier launch of 21 BTC on Solana, aiming to provide a secure alternative to existing options such as wrapped Bitcoin. The launch comes as WBT faces declining trust due to changes in its custodial arrangement.

Starting point is 00:36:00 21 Co says that 21BTC is designed with enhanced security measures and backed by institutional grade custodians, positioning it as a more reliable option in the wrapped Bitcoin market. Polygon begins migration from Maddick to pole. Polygon has started its planned migration from the Maddick token to the new Paul token as part of its Polygon 2.0 inches roadmap. The upgrade, which began on Wednesday, marks a significant shift in Polygon's tokenomics, introducing an annual inflation rate of 2%. The new Pial token will replace Madik as the native gas and staking token on the Polygon POS chain and will play a central role in upcoming features such as the Ag layer and the Polygon Staking Hub, set to launch in 2025. According to Polygon Lab CEO Mark

Starting point is 00:36:49 Boyron, the migration allows for greater flexibility and community involvement in the network's growth and sustainability. Bitcoin miners face toughest month since 2003. Bitcoin miners experienced their worst month in a year, with August 2024 revenue dropping to $851 million, a 10% decrease from July. This marks a 57.5% decline since March, when minor revenue peaked at $2 billion when Bitcoin reached all-time price highs. The recent downturn has been attributed to the post-having landscape, which reduced block rewards by 50%, severely impacting profitability. Despite a record high hash rate of 782.6 exahashes per second in August, miners are struggling as transaction fees have also plummeted by nearly 45% since September 2023. Wazirx users face significant losses after $234 million hack. Users of the Indian crypto exchange WazirX are expected to lose over 40% of their funds following a $234 million hack in July per a tech crunch report.

Starting point is 00:37:55 The exchange, now undergoing a restructuring process in Singapore, has informed users that they may only recover between 55% and 57% of their assets. The hacker, believed to be associated with North Korea's Lazarus Group, has started moving nearly $4 million in stolen ether using tornado cash to obscure the transaction trail. Wazirx has requested breathing space from Singapore's high court to develop the fastest and most effective method for users to reclaim their remaining funds, which will be distributed on a pro rata basis. Time for fun bits. Near Protocol's X account hack turns out to be a marketing stunt. On Wednesday, Near Protocol's X account appeared to be hacked, with the hacker posting a series of messages criticizing the crypto ecosystem. The incident caused a stir, as many believed the account had genuinely been compromised. However, it was later revealed that this so-called hack was actually a marketing gimmick by Near Protocol to promote their upcoming hackathon.

Starting point is 00:38:53 The account was even renamed Scam as part of the stunt. While some found the move clever, others weren't so impressed, calling it a cringe fest on crypto-twitter. Love it or hate it, the hackathon is now definitely on everyone's radar. And that's all. Thanks so much for joining us today. If you enjoyed this recap, go to unchained crypto.substack.com that is Unchained Crypto.com. substack.com and sign up for our free newsletter so that you can stay up to date with the latest in crypto. Unchained is produced by Laura Shin with help from Matt Pilchard, Juan Aronovich,

Starting point is 00:39:26 Megan Gavis, Pam Majumdar, and Margaret Korea. The weekly recap was written by Juan Aronovich and edited by Nelson Wang. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily five days a week with host Noelle Atchison. Follow the Coindesk podcast network for some of the best shows in crypto.

Unchained - Are All Crypto Funds Basically Engaging in Illegal Activity Now? - Ep. 700

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