Unchained - The IRS Wants $44B From Bankrupt FTX. How Is That Possible? - Ep. 491

Episode Date: May 12, 2023

News emerged this week that the U.S. Internal Revenue Service (IRS) placed $44 billion in claims on the FTX bankruptcy estate. Now creditors of the defunct crypto exchange are worried that the taxman is going to gobble up funds that would otherwise be used to make users partially whole. Wassielawyer, a lawyer specializing in restructuring and insolvency, joins the show to explain what’s going on, how that huge number is even possible, and why the so-called “trust argument” is not going to be the silver bullet that some FTX customers are dreaming of. 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 the numbers of the IRS claim are even correct how these claims may affect all customers and unsecured creditors of FTX whether FTX CEO John Ray will fight the claims  what the trust argument is and how it could potentially save (or not) FTX’s creditors in what currency the investments made by creditors would be returned why the Three Arrows Capital case differs from FTX and Mt. Gox why what FTX allegedly did is similar, but different, from what Celsius or Voyager did Thank you to our sponsors! Crypto.com Railgun DAO  Stader Labs Guest Wassielawyer, a lawyer specializing in restructuring and insolvency Previous appearances on Unchained:  Did the Bahamian Government Direct SBF and Gary Wang to Hack Why the Messy 3AC, Celsius, and Voyager Bankruptcies Will Drag on for Years  Three Crypto Bankruptcies: 3AC, Celsius and Voyager. What Happens Now? Links CoinDesk: U.S. Internal Revenue Service Files Claims Worth $44 Billion Against FTX Bankruptcy MeatTC’s Twitter thread Wassie’s Twitter thread 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 at Forbes was the first Metri Meteor reporter to cover cryptocurrency full-time. This is the May 12th, 2023 episode of Unchained. Ever wanted to use Defi 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 Defi apps, while Railgun's cutting-edge zero-knowledge system encrypts your data from public view. Yes, that includes Dextrating. Visitrail.org or use the Railway app at railway.xy. Stager Labs is a multi-chain liquid staking platform with 40K plus Defi partnerships

across six chains. Soon they'll be coming to Ethereum with their LST-EathX. Visit 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. Today's guest is Wasi lawyer, a lawyer specializing in restructuring and insolvency. Welcome, Wasey. Hi, it's good to be back. Late Wednesday, CoinDesk reported that the IRS is claiming $44 billion in taxes on FTC's X and Alameda, both of which are in bankruptcy. I see people commenting on how can that be when Alameda may never have made that much money?

How do you think the IRS is coming up with these numbers? I mean, obviously, it sounds like they don't actually have the details to figure out what the number actually is, so they just go for as high in the numbers as possible. So there's been a lot of experts in the space. I'm not a tax expert, but I've been saying that meat, meet TC has an incredibly bowl summary of what's going on and why the IRS is saying all these

things. But the view which is what is explained is that the IRS is basically reclassifying some contract contractor arrangements and the employee arrangements and sort of claiming back

taxes on that. And essentially because they don't have the details they just go for as higher number as possible and then we'd probably expect the number to actually come down quite significantly if and when it actually gets paid. And one other thing is that the claims are being filed as admin priority. What does that mean?

Yeah, that's the annoying bit. So under the U.S. bankruptcy code, the amounts of monies owed to Uncle Sam take priority over the average unsecured creditor, which, you know, unless you, unless a sort of more creative, trust, arguments hold a bad fruit, that's what the average. customer is an unsecured creditor. So what you potentially have is you have these tax claims coming in in priority to unsecure claims. Just to be just to be sort of clarify a bit further because people have been asking, how does this, how does this affect FTX international depositors given the large tax bill is hitting Alameda?

So to sort of recap, FTX is an unsecured creditor of Alameda. So that's what happens when, you know, when Sam takes all of our money out into Alameda and uses it to, you know, invest in stuff, what actually has happened is that he's borrowed that money from FTX International. And in order for FTCS International to recover that money, they recover in the capacity of unsecured creditor. So having, let's just say if it's a $20 billion tax liability show up at the Alameda level, it means that the taxman gets paid before any money goes. back into FTX International, where it can then be used to pay, well, us. And the other thing I notice is that they're also being called unliquidated. What does that mean? I mean, a liquidated claim is basically a claim for a agreed amount of damages, if that makes sense. So when you're liquidated damages clause, it means you've agreed that if there is a breach, this would be the amount of liquid of damages payable. Unliquidated just means, well, they're just, They're not liquidated.

Okay, meaning that there's a dollar amount, but that hasn't been agreed upon? Yeah, that's the dollar amount is not agreed. Okay, so it's like one side. The court still has to quantify and assess the damage. Okay. Okay. So you started to talk about kind of like the order of preference when we were talking about the admin priority. But obviously some of these tax claims are not just against Alameda, but also FTCS.

So in general, now when you, because obviously if, so like when you look at the docket, you'll see there's like many, many, many different IRS claims against all these different entities in the FTX Alameda Empire. So in general, now how does this affect the bankruptcy proceeding? I mean, you're basically applying the admin priority rule to each individual entity, right? So let's say, I noticed a. I noticed a. I, I, I, I, I noticed a. the tax claim against FTX International as well. So that's the kind of the, that's the straightforward, in a way, straightforward one, right? So FTCS International, you've got your customer deposits in there. All of your customers are claiming, I'm assuming at this point as unsecured creditors, there is a tax claim from the IRS on top of it. It means the IRS needs to get paid its money first before any of the customers can take their money out. Now you apply that across the board to all these entities. And so for instance, like I explained about Alameda earlier,

Alameda owes FTX International $10 billion. If Alameda sells assets and manages to get $10 billion and moves it and uses it to pay FTCS International, FTCS International can then now has that money, which can use to pay its own unsecured creditors, i.e. asset depositors. Now, if there is a $20 billion tax claim sitting in Alameda, which ranks ahead of FTX International's claim against Alameda, what happens is your $10 billion that you may have gotten from liquidating whatever random Sam coin shit coins investments. Now that all just goes to the taxman.

So no money comes into FTAX international. And that means no money is there to pay, pay down the customers. So as we alluded to earlier, the way that these numbers are being presented in the bankruptcy is not with like some kind of, I guess, what's the word, proof of how they were arrived at. And I saw some tax analysts calling into question how it was that the IRS came up with these calculations. So meet TC, who you mentioned. His profile says he's a principal at DGEN legal. And he tweeted about the $20 billion tax bill on Alameda and said, quote, in part, it appears the IRS went back and reclassified all employees from contractors to employees

and hit them for unpaid employer side employment taxes. So for people who don't know this when you are an employee, then your employer will pay a 15% tax on your income. And then you also pay taxes. If you're like self-employing, you are responsible for both sides of that. Another tax-related person, it seems, Mr. Purple DJ tweeted, quote, the IRS claims $8 billion in same tax for 2022, which would exceed all revenue. He also says that it claims $122 million per quarter for payroll taxes, which are 15%. And he said that would imply that they had $3.2 billion in salaries. And then he also flagged that the IRS is not claiming any interest or penalties. And he said typically that's where you usually see large amounts.

So it looks, you know, like people are kind of skeptical of how it was that the IRS arrived at these numbers. So is there any point at which the IRS will have to show its calculations in the bankruptcy? To be honest, I'm not tax lawyer, so I can't comment to that. I can sort of quote from meat, right? They're estimating on the high end. The bankruptcy court require the IRS to show how it's arriving at these. Presumably at some point that they're going to have to, you know, I think this will certainly be defended and litigated. Like, John Ray is not going to sit there and just hand over money to the IRS.

This is something that's going to be an ongoing matter. And it's something that will be, you know, determined for the down of the line for a amount that is going to be vastly smaller than the $20 billion. even if it's a billion dollars, it's painful. Even if it's $500 million, it's painful because of the administrative priority. Right. But I guess what I'm asking is, so it seems like you think John Ray is he's not going to just accept these. He's going to. Absolutely, absolutely not.

Is that a typical thing or is that uncommon or how does that even work? I mean, what the IRS put in is a claim, right? It's just that. It's a claim. and anyone can go in and put in the claim against the FTX estate at this point of time. The question is whether or not that claim actually well exists and the quantum of their claim, that is something that needs to be worked out and flashed out over the coming weeks and months. And presumably the estate is going to start doing a lot of homework to figure out,

look, even if we reclassify off our contract agreements, the employment agreements, this is the maximum amount of tax will be payable and it will be paid out of this silo and this silo as opposed to that silo. So, yeah, I fully expect a lot of work going to be done. The Sullivan Cromo is definitely calling up the tax department and putting them on,

you know, making them work late tonight. Okay, so in a moment we're going to unpack a little bit more how all this will affect the proceedings, but first a quick word from the sponsors who make the show possible. The scorebed app here with trusted stats, some real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or...

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about $1 million in D5 rewards. Back to my conversation with Wasey lawyer. So you also tweeted about a potential saving grace for the FTAX creditors. You called it the trust argument. What is that? oh boy, going to need way more than 15 minutes, probably like an hour or two hours, maybe five. It's short the argument that a role's a very long time ago, I think we may have discussed this briefly, around how the FTX terms of soft services worked, where customers who put in digital assets

retain title to those digital assets. The trust argument is simply that those assets, those digital assets that customers put in were always held on trust by. FTX International and when they transfer them to Alameda, the customers continue to have a proprietary interest in those assets. So if you have a proprietary interest in those assets, you are not a unsecured creditor. You aren't accredited at all. You're just taking assets that's yours. You're asserting the proprietary interest that you have in those assets. The reason why it's it's going to take a very long time to flesh out in detail is because it isn't the silver bullet which a lot of people seem to think it is. People seem to think, hey, if I've got to, if the

trust argument works, that means that my Bitcoin, which is sitting on FTX, is my Bitcoin. So FTX has to give it to me in full without, you know, effectively in priority to everything else. The thing is that it's not really isn't that simple because it has a massive, massive knock-on effects for, for instance, you can no longer have your preference claims, right? Your preferential withdrawal period, because I didn't withdraw any money. I'm not accredited. I just took assets that belong to me. So you're not, you're no longer using that preference section of US bankruptcy court to start clawing back assets against other customers. You're using something else completely different, potentially something, you know, founded in unjust enrichment, which is,

which again is going to take us a very, very long time to talk about. If it's thought that those assets simply belong to the customers and they are not unsecured creditors, then like basically the notion of Clawbex almost doesn't exist anymore, at least for customers. Not in accordance of the U.S. bankruptcy code. Because now what happens if you essentially think of everything as, if you think of the substantially of the customer funds as being on trust as opposed to, you know, customers being unsecured creditors of the company, then you're not looking at bankruptcy law anymore.

You're looking at trust law. you're looking at a trust shortfall clearly and someone who is withdrawn has withdrawn in priority to others and therefore not taken their pro rata share of that shortfall. And you're basically back to, you know, trust law, common law. It's going to be incredibly, incredibly complicated to almost to add to that digital assets. If the trust argument does bear fruit, it's going to, it's basically going to pick winners and loses. It's going to pick, there's going to be customers who wired $10 million or $100 million to Alameda or FTC. Well, they wired to Alameda because FTX used to Alameda's bank account.

But there's going to be customers that wired Fiat money. And there's going to be a customer that wired the same amount and send the same amount in USDA. And the guy who sends it in the USDC gets all of his money back, whereas the guy who's wires the money via bank transfer gets zero or close to that thing. So it's going to end up in a pretty crazy situation. You're going to have a situation where there's going to be a lot of litigation around what assets are in trust, what assets are not in trust. If you started using the leverage trading functions of FTX, do you then give up your, do you then give up a proprietary claim?

I don't know. I don't know the answer to that. Okay, wait. We're going to have to put a pin in that one. Yes. But what I wanted to ask first was just when you were talking about the, the person who wired money and how if they were wiring US dollars and they might not have any claims or or get any money back so but what if you know you were wiring money because you thought that you were buying a whole bitcoin like you wired you know 20 000 bucks because you thought you were getting one whole bitcoin then you're absolutely seeing the um absolute insanity the ensues

because if i wired a 20 k to buy a bitcoin and i buy the the Bitcoin, do I now hold the Bitcoin? The Bitcoin's now in trust. Then the guy who deposit the Bitcoin, does he no longer have a proprietary interest in the quote-unquote trust? Does he now only have a, you know, claim as an secret credit against the FTX estate? You see why this creates a lot of... Well, I don't see why they wouldn't both have their assets and trust there. The only problem would be is if Alameda didn't actually buy the Bitcoin at the time with the US dollars. which it looks like maybe they didn't for some of them.

Yeah, that's that as well, of course. So you are looking into very, very complex areas of trust law. And like, I can't say that I have all the answers right now. There is literally no one here who can say that they have all the answers right now. If we were to end up in a world where customer assets were held on trust, it will. Okay. And before we, I still want to get to the leverage question, but before we move to that, I just wanted to ask, like, it sounds like all of this is raising the exact same issues that came up with the Mount Gawks case.

But at that time, the Japanese court decided to denominate everything in dollars and not return investments to people based on the amount of Bitcoin they had. So is this kind of like a question that keeps coming up and over and over again in different courts worldwide? And do you think that it's just, we're just going to end up with different jurisdictions that have different standards? or do you feel like, well, start to see a particular standard emerge? So, I mean, I spoke with Gondi about this Mungox thing as well. And I think what happened, I mean, there was some sort of arrangement that happened where I think the creditors are, in fact, getting the Bitcoin back because the value of Bitcoin has scored up so massively that I can't record

the exact details of the arrangement or the court process they use, but it's very different from the U.S. court system. The issue of the nomination of crypto claims is going to be something that is going to be an issue. It is likely going to be litigated. It is an issue that it doesn't really have to be determined unless you actually liquidate, you completely liquidate the company

because you could agree as part of a Chapter 11 plan or agree as part of the restructuring plan how you're going to deal with those assets. You could. The one way I can see, this being litigated very seriously is three arrows capital because that's a liquidation scenario where there is a lot of finality to it. And so I'm sorry, like what is it about the three arrows case that makes it different? Oh, because it's a liquidation scenario where

now we're looking at chapter 11. Chapter 11 is a reorganization procedure for the most part, right? I mean, we could still end up having to liquidate bits and pieces of it. I mean, the customer claims may end up just being denominated in the US dollars. Okay. So, all right. So, yeah, I guess we're just going to have to see how. Yeah. But the denomination of crypto claims is very different from the trust argument.

It's, the trust argument is an almost uniquely FTX matter, just to clarify. Oh, okay. Yeah. There's no other bankrupt. I mean, I guess like with Celsius that was. Celsius is a custody, correct. It's basically the custody lawsuits in Celsius. whereas people would say my assets and custody,

the thing is, SELS has actually had a custody function and a non-custody function, where it was very clear that those in the non-custody function were not secured creditors. And then there was a custody function and then there was a withhold function somewhere, where I think there was where a lot of litigation was.

Now, in FTX, the argument is that even though FTCS never really had a custody function or anything like that, they are arguing that from the terms of service, the FTCS never had title to any of those assets. and therefore as PX using those assets, lending them to Alameda when they did so it was an appropriation of custom assets and there was a trust over those assets. And the customers have a direct proprietary interest over those assets. Am I right that that probably is the correct interpretation?

Like any crypto person would definitely say when you have your money on an exchange that it's still your money. Like, it's not like you gave the money to the exchange. It's just like they're holding it, but you own it. Yeah, probably. Except it's also a complicated effect. It's been a while since I revisited this, but I've had quite long discussions of Gandhi about this. And it doesn't help that the terms of service would change semi-recently to the English terms of service, which kind of provides this, your title does not transfer provision, which everyone is hanging their heads on.

So potentially you then have a timing issue as well as to which terms of service your specific deposit came under. Oh, wow. Wait, and I'm sorry, what did you say? And under English law, you're titled does not transfer. No, so the terms of service that everyone's referencing in order to make this trust argument is a terms of service governed under English law, which specifically states that your digital assets remain yours and title does not transfer to FTX. and this is the provision which people use to say the digital assets belong to me. They're held on trust. I have the right proprietary interest in these digital assets. The slightly complicating bit is that these terms of service were fairly recent, and there were previous versions of it,

which may not have language that put it in such a specific manner. And from recollection, they were also not English law governed. Okay, but in that case is the basic reading what, FTAFs owns the money or the creditors or the customer? I have to think it up, but I have to dig it up, but I recall the language not being that clear. Like if you want to have a further chat about the trust argument, I'm happy to, you know, I mean, I thought we're talking about texting here, but if we're talking about the trust thing, I could sit down with you for an hour. Okay. And we can go through the, we could go through the eventualities and what the arguments actually are, if that helps. Well, okay, so obviously we're not going to do that right now, but at the moment, does it look like the bankruptcy estate is leaning toward that interpretation?

I think the court is going to decide on it. So fairly soon as well, if I'm not wrong. So we'll probably hear a bit of it soon enough. And any indication on how the judge is leaning? No idea. Absolutely no idea. All right. And then the last thing, because you said it's. so fast, but I didn't quite catch it. You said something interesting about leverage as well. The leverage, but it just goes back to the trust argument that we were discussing earlier, which is if you're using leverage functions, let's see if your digital assets, right, and you're saying, I have direct proprietary interest in those digital assets, but you then borrow money from FTX secured on those digital assets.

What's the nature of the security on those digital assets? Do you give up your proprietary title when you use any leverage functions? Maybe, maybe not, depending on what the security ends up actually being. Obviously, it's not specified. And to what extent do you give it up if you do? No idea. Absolutely no idea. There's a lot of open questions with the trust stuff.

That's what I'm saying. All right. It's not a silver bullet where trust finding means I get all my money back and everyone else gets fucked. Okay. Yeah. It sounds like in this pick a path adventure, every ending is a little messy. Yeah.

Personally, as a lawyer, I really, I want to see the trust argument because it'd be so, it would be so interesting. I think a lot of lawyers want to see it because it's interesting. But if you are a customer of FTX, you do not want to see it. Because I say you do don't want to see it. I think a lot of people do because that may or may not give them better recoveries. But what's happening is this is all going to be. litigated on the FTX customer dime, right? So do I want new law being made with with the estate's money paying lawyers? Probably not. It's just going to be a very, very, very convoluted,

complex and annoying matter. Okay. Right. But it sounds like it would be good for the space as a whole if it was decided in that way, at least in my opinion, because I feel like, well, I don't know, or maybe not. Maybe it would be good if it was decided the quote unquote wrong way and then Nobody would put their money on centralized exchanges. I would like it to be, as a crypto participant, there is an implied understanding that your keys, your coins belong to you. And when you put them on an exchange, they still belong to you. And the exchange can't just steal it and, you know, or basically converted into credit.

But obviously, this is what FTX did. I think I mentioned previously FTX were basically trying to do what your Voyager and your Celsius did except Voyager and Celsius at terms and conditions that allowed them to use and re-hypoticate customer assets or FTX did not.

And now we're figuring out what happens if you do not have those terms and you do it anyway. That is such a great description of what happened there. Yeah. All right. Wasi Lurie, this has been super fascinating.

Thank you so much for explaining it No worries. Thanks for Laura. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Join over 80 million people using crypto.com, one of the easiest places to buy, trade, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 5% cash back instantly. Plus, 100% rebates for your Netflix and Spotify subscriptions and zero annual fees. Download the crypto.com app now and get $25 with the code Laura. Link in the description. Thanks for tuning in to this week's news recap. SPF seeks dismissal of charges blaming crypto winter.

Sam Bankman-Fried, the founder of the bankrupt crypto exchange, FTX, has intensified his legal fight, petitioning a Manhattan federal judge to dismiss the majority of criminal charges against him related to the exchanges collapse. Bankman Freed's legal counsel argued on Monday that several accusations including fraud, conspiracy, campaign finance law violations, and money laundering do not adequately constitute an offense. The move seeks to nullify 10 of the 13 charges against the FTCS founder, leaving only allegations of conspiracy to commit commodities fraud, security fraud, and money laundering. The attorneys further claimed that the U.S. government's original indictment was a, quote, classic rush to judgment amid a turbulent

crypto market that saw multiple bankruptcies. They also asserted that the team handling FTCS's bankruptcy proceedings, led by the current CEO John Ray III, has been co-opted by the prosecutors to help gather evidence. The dismissal request will be heard by U.S. District Judge Lewis Kaplan on June 15th. Meanwhile, Bankman Freed's former associates, including ex-Alameda Research CEO, Caroline Ellison, and FDX co-founder, Gary Wang, have pleaded guilty to multiple federal charges and are cooperating with the ongoing investigation.

BitTrux bites the bankruptcy bullet amidst SEC pressure. BitTex, the Seattle-based crypto exchange, filed her Chapter 11 bankruptcy this week, following the company's decision to shutter its U.S. operations amidst ongoing legal challenges by the Securities and Exchange Commission. The regulator accused the company of operating an unregistered security exchange, though Bitricks has denied the allegations stating, quote, securities were not offered or traded on Bitrex. The company says U.S. customers' funds remain secure and that repayment is a priority.

Bitricks' attorney, Sushil Kirpilani, stated that the company had sufficient crypto holdings to fully repay all remaining customers, a fact underscored by the approval of a unique bankruptcy loan. The Delaware bankruptcy court permitted Bitrex to borrow $7 million in Bitcoin from its parent company, Akila Holdings. Bitrex's Chapter 11 filing does not affect its international operations under Bitrex Global, which continues to service customers outside the U.S. Nevertheless, the U.S. Treasury Department's Office of Foreign Assets Control, or OFAC, is listed as the company's largest unsecured creditor, with a debt exceeding $24 million tied to a settlement over alleged sanctions violations. The SEC also features among the creditors, with a claim amount yet to be

determined pending ongoing litigation. Regulatory scrutiny triggers strategic retreat for major crypto market makers. This week, Bloomberg reported that increased regulatory pressure on digital asset trading in the U.S. has prompted renowned market makers, Jane Street Group, and jump crypto to scale back their crypto operations. On Tuesday, Bitcoin began trading at a premium on Binance U.S., a phenomenon that industry experts suggest could be linked to these drops in market making. Industry analysts are also raising red flags regarding the potential impact of this strategic retreat on Bitcoin trading liquidity. Traditionally, market makers like Jane Street and Jump Crypto have provided stability and depth to the crypto markets. Their reduced involvement could exacerbate existing liquidity challenges, particularly in the Bitcoin market.

Bitcoin's network congestion triggers withdrawal halt and BRC20 reconsideration. In the wake of substantial Bitcoin network congestion, finance, the world's largest crypto exchange, temporarily suspended Bitcoin withdrawals. This move followed an influx of over $180 million and a surge in unconfirmed Bitcoin transactions, reaching a record of 488,000. Critics like Swan Bitcoin analyst Sam Callahan argued that Binance either, quote, didn't want to pay up with higher fees or didn't want more Bitcoin leaving the exchange. The rising transaction fees, now up 300% from last year, are due to. due to the proliferation of BRC 20 transactions on the Bitcoin Ordnals Protocol.

These transactions account for over half the Bitcoin network's activities and have led to calls from Bitcoin Core developers to potentially reject all BRC20 token transfers. One developer, Ali Sharif, proposed a code-based change to address this issue or the introduction of a runtime option to delete all non-standard taproot transactions, including BRC20. Adding to the network's challenges, the Ordinals' say, system, utilized for inscribing digital collectibles onto the Bitcoin blockchain, recently encountered a bug that disrupted its numbering system. Ordnals creator Casey Rottermore admitted to uncertainties

about the best course of action for addressing the bug. Aragon Association curtailed A&T voting rights. A week after booting several members who questioned leadership from its Discord channel, the Aragon Association has decided to repurpose its decentralized autonomous organization or Dow. The association has now transitioned its focus toward a new grants program aimed at developers of decentralized applications and other Dow creators. Louis Quende, a co-founder, also called for $30 million in token buybacks. These moves come in response to the activities of the risk-free value or RFV raters, a group of activist investors whose members include ARCA capital management and which has become active in Dow's whose treasuries are larger than the market caps of their coins. The association

considered their activities to be potential, quote, financial attacks. Critics have questioned the Aragon Association's motives and the lack of a community vote on these decisions. Arka, for instance, has called for more transparency and community empowerment. The Association maintains that the repurposing of the Dow is a necessary step for the project security and advancement of its mission. Digital Currency Group wrestles with Genesis Bankruptcy. Tuesday was the due date for DCG's first loan repayments to its insolvently. lending subsidiary, Genesis Capital. Instead of repayment, the conglomerate announced that it is seeking to refinance its obligations to Genesis and raise capital. DCG and Genesis are currently engaged in a 30-day

mediation period with stakeholders, following several creditors abandoning a previous agreement. Genesis had first filed for bankruptcy in January, owing at least $3.5 billion to its creditors. As the clock ticks toward the end of May, DCG and Genesis are racing to agree to a restructuring plan to salvage the situation. If you are a little lost with this topic, don't miss last Friday show of Unchained with Rom Al-Alawalia. Grayscale targets expansion with new ETF proposals. Grayscale investments, the world's largest digital asset manager, announced plans to launch three new exchange traded funds and create a new entity, the Grayscale Funds Trust. The firm's CEO, Michael Sonnonshine, highlighted the company's aim to continue creating and managing, quote, regulated future-forward

products. The new ETFs include, one, gray-scale Ethereum Futures Trust, which would mimic Bitcoin Futures ETFs, unless, because of the uncertain status of ether, the SEC rejects it. Two, gray-scale global Bitcoin composite ETF, which will invest 40% in internationally listed Bitcoin ETFs and 60% in Bitcoin mining companies. And three, the Grey-Skill Privacy ETF, which will invest 10% in Grey-Skills Z-Cash trust and other privacy-related companies. BlockFi clients to be reimbursed $300 million. BlockFi, one of the many crypto lending platforms that went bust last year, has been ordered by a bankruptcy judge to refund nearly $300 million to its customers.

The ruling, issued by Judge Michael Kaplan, determined that assets in BlockFi's custodial wallets are considered client property, net assets of the bankruptcy estate. However, a further $375 million that clients attempted to withdraw from BlockFi's interest-bearing accounts, after November 10, 2022, remains in contention. Kaplan stated that these transactions initiated after the company froze funds due to the fallout of FDX's collapse were not completed. While these funds can technically be returned immediately under bankruptcy law, a dispute over their status has delayed the reimbursement process. Voyager Digital moves forward with a self-liquidation plan.

Crypto Lender Voyager Digital is charting its path toward dissolution and asset liquidation after unsuccessful negotiations. after unsuccessful negotiations with both FTXUS and Binance US. The termination of a $1 billion asset purchase agreement with Binance US after the company abruptly pulled out has left Voyager in a predicament. The consequent liquidation will enable Voyager's creditors to recoup approximately 36% of their crypto assets, a considerable decrease from the previously projected 72 to 73% recovery rate under the aborted acquisition plans. With a focus on making amends, Voyager has declared,

that initial distributions of cash and crypto to its customers are expected to commence in the upcoming weeks. Ex-Coinbase manager is sentenced to prison. Ishan Wahi, previously a product manager for Coinbase, has been handed a two-year prison sentence in crypto's second insider trading case. Wahi admitted guilt to two conspiracy accounts involving wire fraud. Wahi shared private company data about upcoming asset listings on Coinbase with his brother Nikhil and a friend Samir Ramani. This insider knowledge allowed the trio to make informed trades

ahead of listing announcements, netting them $1.5 million across 55 digital assets. U.S. Attorney Damian Williams emphasized that Wahee's sentence should serve as a deterrent to other crypto insiders, warning against any misuse of confidential corporate information. Wahi expressed remorse for his actions in court, stating, quote, I made a huge mistake that will follow me for the rest of my life. Do Kwan puts forward a bail proposal. Lawyers for Terraform Labs founder Do Kwan, presently held in Montenegro on charges of travel document forgery, proposed that he be released on supervised bail of $400,000 or $437,000. Both Kwan and fellow Tara executive, Han Chang-June, denied the charges, insisting on their

innocence at a recent court hearing. Arrested in March, the Tara executives now await the court's decision on their bail proposal, with the next trial scheduled for June 16th. Beyond the Montenegrin case, extradition awaits Kwan to either the U.S. or South Korea, where he faces additional criminal charges tied to the collapse of Terraform Labs in May 2022. Suu gets Singapore court to muzzle Arthur Hayes. Arthur Hayes, the co-founder of Bitmucks, has been issued a Singaporean court restraining order at the request of Suu, co-founder of now defunct Crypto hedge fund, Three Arrows Capital. Hayes is prohibited from using any language or communication that could distress Zhu. This order follows Hayes's persistent tweets demanding $6 million

he alleges to be owed since 3AC's collapse. Some crypto community members had harsh words for Zhu. Mike Dutas of Sixth Man Adventures tweeted, Sue Zhu is a coward to the core, who betrayed his friends, investors in his fund, rating the remaining 3AC funds under false pretenses before going on the lamb and ghosting those he grifted from. Beyond disgraceful to see him trying to play the victim. Time for fun bits. Unchained Jenny Hogan has something to say about Binance needing to temporarily halt Bitcoin withdrawals. It's allergy season and Binance is congested. That's right. They paused Bitcoin withdrawals twice on their platform in the last 24 hours. Withdrawals are back now, but Bitcoin prices have fallen 3.5%, which honestly does seem like a normal

weekend, but we should still be mad at finance. People can't just have their Bitcoin withdrawals halted, okay? What if they need that Bitcoin to pay rent? Said dozens of Bitcoin traders who live rent-free in their parents' basements. Finance is calling this issue a learning opportunity. That's not what a learning opportunity is. A learning opportunity is when I hire an unlicensed plumber because he's cheaper and he ends up creating an issue that floods my downstairs neighbor's apartment

and I get charged $700. Finance apologized and thanked users for their patience. I mean, duh. Nothing screams patience like a... crypto trader. They also adjusted their fees to deal with this in the future. The only issue is they adjusted them upwards. Please accept our sincerest apologies and also higher prices. Thanks so much for joining us today. To learn more about Wasi and the IRS's tax claims on the FtX bankruptcy, check of the show notes for this episode. Unchained is produced by me, Laura Shin,

with help from Kevin Fuchs, Matt Pilchard, Zach Seward, Juan Oranovich, Sam Shriam, Ginny Hogan, Jeff Benson, Leandro Camino, Pamma Jimdar, Shoshank, and Margaret Correa. Thanks for listening.