Unchained - Why Grayscale Is Suing the SEC Over Its Denial of a Bitcoin ETF - Ep. 448

Starting point is 00:00:00 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 the senior editor at Forbes, was the first Matrixe Meteor reporter to cover cryptocurrency full-time. This is the January 27th, 2023 episode of Unchained. If you've been enjoying Unchained, please leave us a review on Apple Podcasts. It helps other people find the show. With the crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code, Laura. Link in the description. Today's guest is Michael Sondenshine, CEO of Gradescale. Welcome, Michael. Hey, great to be here. Thanks for having me.

Starting point is 00:00:46 The Grayscale Bitcoin Trust, or GPTC, is currently trading at a 42% discount to the net asset value or NAV. Because the 2% fees on the trust are tied to the NAV, people invested in the trust are effectively paying almost a 4% fee per year compared to the price of the underlying. And on top of that, investors cannot redeem their shares for Bitcoin and also would probably struggle to share their shares to somebody else willing to pay those fees. Do you think that's an appropriate fee for investors to pay when they don't have the option to leave the product? Well, so a couple of things to clarify there, Laura.

Starting point is 00:01:21 So one, the total annual management fee for any and all GBTC shareholders, is 2%, right? And when somebody invests in the product, it's not as though they put a dollar in and 98 cents only goes into, you know, giving them exposure to Bitcoin. It's instead similar to other investment products that the underlying Bitcoin per share ratio over the course of a year will decline by 2%. And the fee on the product today, I think, is certainly borne by, you know, just a lot of costs that go into running a product in the crypto. It's not analogous today to the kind of economies of scale that you'll see for equity products or fixed income products.

Starting point is 00:02:05 And we've said publicly, and I'll say to you again, we are committed to lowering the fee on GBT when it converts to an ETF. But certainly in the meantime, all the fees that are being generated on GBT, that is all the capital that we as an organization are putting into our lawsuit against the SEC, bringing the best legal minds possible to the case and really just continuing to advocate for our investors. So we feel very strongly about the case, the full resources of the firmer behind it. And again, yeah, we'll lower fees in an ETF state. Yeah.

Starting point is 00:02:42 So let's actually now just play out some of the scenarios around the lawsuit. You know, for listeners, we'll catch them to see. Grayskill is suing the SEC over its denial of Grayskill's Bitcoin ETF application. Oral arguments will be heard March 7th, which is coming up for. pretty soon. If it fails, you've said that you would appeal. At this point, you were saying that under the ETF, that's when you would consider lowering the fees. There's another scenario where you would appeal. But if the appeal also is not successful, then are there any other conditions under which you would reduce the fees? Sure. So let me just lay this out just to set the

Starting point is 00:03:20 record straight and who better to do it with than you. Contrary to what folks may think, we didn't somewhere along this journey in the last nine years decide that an ETF was the ultimate goal for GBTC, right? An ETF format was what we always conceived of, and that's always what we intended to do, even before we launched the product back in 2013. So we have been on a journey for the last nine years, not only growing this product and bringing Bitcoin accessibility to investors in a regulated and accessible way, but we've always been in pursuit of an ETF. So when we think about the journey that we've been on, yes, it was

Starting point is 00:04:00 very unfortunate and very disappointing that the SEC denied our application to convert GBT to an ETF in June of 2022. Investors have been patient. We think investors deserve this. And it really is a signal that in the near term, investors have really seen that their regulator is, you know, pretty much shutting the door on the opportunity to take the world's largest Bitcoin fund and bring it closer into the regulatory perimeter. So it left us no option other than to initiate a lawsuit, right? We have a fiduciary obligation to our shareholders. This is what they want and this is what they deserve. So we had to proceed that way. The case is moving swiftly. So again, we filed the case in June of 2022. It's now late January, 2023, oral arguments, as you said,

Starting point is 00:04:47 coming up in a couple of weeks. And we do expect a decision on the case by this fall, the fall of 23. If we lose the case, although we're confident that we have really common sense, straightforward arguments, we've definitely seen overwhelming support for the strength of our arguments that the SEC is looking at Bitcoin futures ETFs and Bitcoin Spot ETFs in a very disparate way in an arbitrary, kind of vicious manner. We would seek to appeal the case. A couple of weeks ago as well, in the spirit of transparency, we did really want to communicate to investors that if ultimately we exhaust all of our judicial options, and again, that would really not only be, you know, continuing to fight the SEC in a judicial setting, but it would also

Starting point is 00:05:36 mean that the SEC was, you know, continuing to deny investors the additional protections of an ETF. And we were done with all options. We would then consider putting, you know, a tender offer, A tender offer would be a material deviation from the long-term path that this product has been on. And of course, the details of a tender offer would need to be worked at with the SEC, receive shareholder approval, SEC approval. But that would be an outcome that would really, again, be more indicative of regulatory postures than it would be gray scales intentions or what investors ultimately want, which we know as an ETF. And can you walk us through what that tender offer would look like?

Starting point is 00:06:18 It's really tough to say because a tender offer is really rooted in the idea of the details of which being completely fair and equitable for all shareholders. And so when you have a product like Bitcoin or in this case, GBT, where the value of the asset moves around every single day, you know, a more bespoke tender offer would need to be worked out with the SEC to get comfortable that the tender offer was being administered in a fair and at least. equitable matter. So as we mentioned at the beginning of the show, a number of investors are underwater on their GBT investment and also paying, you know, what to them feels like high fees. And I'm sure you're aware that some segment of them are calling for Grayscale to seek what's called Reg. M relief from the SEC that would allow investors to redeem the shares for the underlying asset, which is in this case, Bitcoin. Why has Grayscale not filed for the Reg.m relief? You know, I, I, I get your timelines that you talked about for the lawsuit and stuff, but are you essentially saying to these investors that they need to hang on for the resolution to that? Because that obviously is, that's a long, that's a long wait for some of these people that, for instance, have this money in their retirement accounts and are, you know, not really able to enjoy the fruits of their labor. So, Laura, it's another great question. And let's let's take this opportunity to clear up some

Starting point is 00:07:44 confusion about this. Regulation M, is something that is really tied to ETFs. What Regulation M offers is a product relief from Regulation M to simultaneously create and redeem shares. And so Reg. M is an exemption or an exemption from reg M is something that's granted to all ETF applicants. And so an ETF, as we all know, is a financial instrument that, you know, is holding some other asset or giving exposure to some other asset. And because the ETF will move around, you know, throughout any trading day, it's important that the ETF is able to be kept in line with the value of what it owns based on creations and redemptions and an exemption from reg. So those folks that are calling

Starting point is 00:08:33 for reg M being something that's obtainable in a vacuum, that's simply just not a possibility. And so when we think about the conversion to an ETF, when we think about the application that was denied by the SEC. When we think about now the lawsuit, Grace Gale has filed, challenging that decision, the core part of what that lawsuit is is not just an ETF, but obviously comes with reg M relief as well. So the investors that want to see that reg M relief, they're the ones that, you know, are certainly can be frustrated with the discount. We as a team are frustrated with it too. We want to see reg M relief. We want to see the conversion to an ETF. And that really is the core part of the case and really what we're advocating for.

Starting point is 00:09:18 Hedge fund Fur Tree is suing Grayscale to obtain more details around the trust. And it looks like they're doing so in the hopes of getting Grayscale to resume redemption and also cut fees. Are you going to grant their request for information? And do you feel that shareholders are entitled to that? Yeah. You know, it's funny to see that so many investors are taking an interest in Grayscale and Grayscale's operations.

Starting point is 00:09:42 we continue to feel that, you know, the ETF is going to be the best long-term solution for any and all shareholders. Again, it addresses any concerns over fees being too high because we've committed to lowering them in an ETF state. And we're also confident in the strength of, you know, of our lawsuit against the SEC. And so I think given the kind of recent mistrust we've seen in and around in the crypto space, there has certainly been, you know, a small vocal minority of folks that are further frustrated. And we share in that frustration, Laura. We really do. In a moment, we're going to talk about some of the questionable incidents that have happened around GVTC. But first, a quick word from the sponsors who make this show possible.

Starting point is 00:10:26 Join over 50 million people using crypto.com, one of the easiest places to buy, earn, 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. Back to my conversation with Michael. Last Friday, bankruptcy documents showed that Gemini liquidated 31 million shares of GPTC

Starting point is 00:11:01 that had been pledged to it by Genesis. And they liquidated all of that in a single transaction in November. number, because GBT is a restricted security, an issuer of these kinds of restricted securities cannot sell more than 1% of the shares per quarter. And this was actually a sale of 5% of all the shares. Did Grayscale know that this liquidation was going to happen? So as the case is with any investment manager or with any investment product out there, we're not necessarily going to be party to every transaction that takes place. So the result of what you're, seeing and when you saw it in the market is the same time our team saw it. So the transaction that

Starting point is 00:11:43 you're referencing, I think, was something that was floated through the documentation that Genesis capital put out as a part of their bankruptcy proceedings that kind of detailed the transaction between Genesis and Gemini. We were not party to the transaction itself and we're not aware of the transaction itself that it had in that case. So if the transaction took place as documented, then would you agree that the amount sold was five times the allowed limit? So I am not a Rule 144 expert, so it would be tough for me to comment on it. I would certainly direct you to the folks at Genesis or Gemini to really think through the transaction, although I'm sure both of those parties were very thoughtful about the transaction,

Starting point is 00:12:28 given the relationship that they have. So another big GBTC trade that's been talked about quite a bit this past year was for instance, sort of this levered long trade using GBT, made famous perhaps by three arrows capital. Can you talk about how you think that trade worked? Sure. So I think certainly earlier in GBT's lifecycle, we've seen the product trade at both premiums and discounts to its net asset value. And so there was certainly a period of time where GBT was in fact trading at a premium

Starting point is 00:13:01 to its net asset value. And so investors who were subscribing to the private. placement when they were locked up, you know, cause of the private placement shares anywhere from either 12 months or eventually six months once GBT became an SEC reporting company, they had to certainly take the risk on over that 12 or six month period, not knowing where they'd be able to monetize their GBT shares out in the public market. And so for some investors who waited out that 12 or six month period, they may have reached a time when their shares became freely tradable and GBTC was trading out a premium to its nav or a premium to where

Starting point is 00:13:41 the spot Bitcoin price was and thus were able to actually monetize their investment at a value that would have earned them a higher, you know, return than had they just gone long Bitcoin itself. And so that is, you know, certainly something that some investors were able to profit from. And do you think that they were also buying shares of GBT pledging that as collateral with Genesis to obtain more Bitcoin, which they were then using to create more GBT shares? Yeah, so certain investors were able to obtain loans to be able to trade in GBT or to, you know, create shares of GBT. The collateral arrangements, I think with each of those investors would have been different in something that Genesis would have been the party that was extending credit to

Starting point is 00:14:34 the investor, not something that was born by gray scale. And so for the structure of GVTC, investors are not allowed to transfer shares until after six months, and those shares also cannot be uncumbered for that period. Was Genesis allowing 3AC to use these so-called unseasoned shares, you know, that are less than six months old to borrow Bitcoin? Yeah, so I think that there's some minutia to get into there, into the legal docs that surround GBT, and the unencumberance has to do with the underlying Bitcoin that, you know, stays within our products itself. And so the Bitcoin that underpins GBT, the Ethereum that

Starting point is 00:15:16 underpins ETH, those coins are unencumbered. They're owned by the shareholders themselves. They're not loaned out. There's no liens or pledges, et cetera, against them. But there is certainly the opportunity for shares to be pledged in certain. financial arrangements so long as those are disclosed and signed off on. Oh, and that wouldn't violate that restriction against them being encumbered? So long as the pledges are properly disclosed and documented. Okay. Genesis had long been GBTC's authorized participant, and what that means is that's the entity that has the ability to create and redeem shares in the trust. In October, Grayscale

Starting point is 00:16:02 changed the authorized participant to Grayscale. And obviously, the timing on that, you know, October is the month before things want, you know, quite far south in the crypto community. Why did Grayscale make that change at that time? So it was actually a change that I believe we set in motion about a year or a year and a half prior to that October date. As we have been continuing to grow as an organization, some of the functions that we've been working to build out are, for instance, our own broker-dealer and our own registered investment advisor. And so in 22, we obtained both Grayscale Securities, our broker-dealer, and Grayscale advisors are RIA. And so it was quite a bit further along than that October timeframe that this was already on a path to having operational

Starting point is 00:16:51 independence and actually taking over the role as authorized participant here at Grayscale Security. So this was something that was planned for and just happened to be a switchover. in and around that October 2022 timeline. I'm sure you're very well aware. The crypto community has a lot of questions about the relationships between Grayscale, Genesis, and DCG. Can you explain sort of what the information is that Grayscale, for instance, has about Genesis? Do you know who the shareholders are?

Starting point is 00:17:21 Do you know when transfers occur? How is information shared? How are decisions made? Just to outline all of that. Yeah. So I think from an outside perspective, it's sometimes a little hard for folks to wrap their head around, but DCG, Digital Currency Group is a conglomerate, and there's tons of conglomerates out there. And whether it's, you know, Berkshire Hathaway is a conglomerate that owns NetJets and

Starting point is 00:17:43 Geico and other businesses or LVMH as a conglomerate and owns tons of companies underneath it that are operating subsidiaries, I think the DCG scenario is really analogous to those where grayscale is a standalone entity that has, you know, common ownership under the DCG umbrella, the same is true of Genesis, the same is true of, you know, coin desk or trade block or, you know, foundry. And so, Grayscale is a standalone entity, separate and distinct from these other businesses. I have my own management team surrounding me. We have our own budgets, our own governance, our own policies, our own procedures, as I shared our own broker-dealer, our own RIA.

Starting point is 00:18:23 And so we're not privy to or party to what's transpiring in any of the other entities, despite the fact that they are owned wholly by digital currency group. And can you also just in that, I mean, maybe you sort of answered it, but I think people are also very curious to know how involved Barry is Barry Silbert, the head of DCG, how involved he is in the decision-making and strategy of Grayscale. So I think given that a lot of what has happened at Grayscale was Barry's idea to start. You know, Barry was the one who was early enough into Bitcoin to say, I think we should start an investment vehicle to make it easier for people to access Bitcoin as early as 2013 when

Starting point is 00:19:06 folks, quite frankly, Laura, thought he was crazy. You know, I think, you know, strategically and directionally, Barry has set grayscale out on a path, but then he, you know, brought someone like myself in and I brought a, you know, leadership team in around me as well to really execute on that early vision that Barry had. And so he is not involved in day-to-day decisions. He's not involved in, you know, changes to policies and procedures. You know, Barry's focus has primarily been on investing at the DCG level, whether that's in protocols. And I think DCG now is invested in over 200 companies in over 40 countries around the world. So a lot of his focus there is on keeping track of what's transpiring in the broad, you know, crypto asset class.

Starting point is 00:19:53 on a global level and not, you know, being bogged down in the decisions that my leadership team and I are making day to day here at great scale. The trust documents were also restated to remove shareholder rights, specifically the right for shareholders to replace the sponsor as long as there was a 75% threshold of shareholders in favor of that. Why was that move made? And can you talk a little bit about the process for changing the trust documents? Yeah. So there have been, several amendments to the trust agreement over the life of GBTC and other gray scale products, which is something that's not unique to our product family. You see changes occur all the time

Starting point is 00:20:35 in investment products. And to be clear, when changes do come about, to the extent that they are the least bid or possibly adverse to shareholders, they are ratified by a majority of shareholders. So these are not decisions that Grayscale is making in a silo. So it's really important. important to know that, you know, that exact, you know, distinction. So any of the changes that have been, you know, put forth out to shareholders have, in fact, given them, you know, the statutory opportunity to weigh in on any of those changes and ultimately weigh in on them over time. And do you publish the results of those shareholder votes? You know, that's a really good question. I think the last time the trust agreement was updated may have been as recent as 2016 or 2017 when perhaps

Starting point is 00:21:22 there were some changes associated with, you know, converting GBT to an ETF. But I'm not sure of the exact date or the last time the trust agreement was updated. So, you know, as we alluded to at the beginning of this, there are a number of investors in GBT who, you know, they're hurting at this moment. And I wondered if you felt that there was anything that Grayscale or DCG could have done differently to engender more trust. if there's anything over the last few years that, you know, you feel could have, you know, been improved upon. I got to say, Laura, I think that we have amassed an unbelievable investor base.

Starting point is 00:22:00 We have now a million or more than a million investor accounts in the U.S. alone that own GBT. All 50 states are represented. Small holders, large holders, institutional holders. GBTC is inside of ETFs, inside of mutual funds. And so I'm really proud of. of the team that I built, the work that we've done. And I feel that shareholders do, in fact, trust that we operate as an organization that has really thought about not only its construction, but its operation. We were born in the U.S. We made use of existing U.S. rules and regulations. We've continued to push the limits on fair and full disclosure for investors.

Starting point is 00:22:43 We voluntarily went to the SEC and became the first SEC. reporting company. We work to develop definitions, risk factors, policies, all of which has only resulted in greater shareholder protection. And, you know, I think you'd be hard pressed to find another asset manager that is, you know, so bold as to actually file a lawsuit against the regulator that oversees every aspect of their business. And that's a decision that, you know, both as a CEO and And we as a team, we didn't take that decision lightly, but we knew it was the right thing to do for our shareholders. And so we have been on a journey on this path towards ETF. And we continue to, again, feel really strong about our arguments and really continuing to advocate for shareholders. Yeah. And I should add that just before recording, Andrew Parrish, who has a very active Twitter feed where he talks a lot about what's going on at Grayskill, DG and Genesis.

Starting point is 00:23:43 He tweeted that, you know, somebody took a look at the legal arguments and felt that they were very strong to the point where they thought maybe they could even go to the Supreme Court. And, you know, for more information on that, I either did an interview with Matt Hogan or I at least wrote an article in which I quoted him. I will put whatever piece of content that was in the show notes so people can find out those arguments. But Michael, it has been such a pleasure having you on UnChain. Thanks for coming on the show. Thanks for having me, Laura. always good to chat. Don't forget, next up is the weekly news recap.

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Starting point is 00:25:01 Just use the ones that come in the bag. Don't let the Lux go to your head. Thanks for tuning in to this week's news recap. BlockFi has a $1.2 billion exposure to FTCX and Alameda. Bankrupt crypto lender BlockFi accidentally revealed financial documents that showed it had over $1.2 billion worth of assets tied to the cryptocurrency exchange, FTX, and its sister company, Alameda.

Starting point is 00:25:28 The extent of BlockFi's exposure to the exchange was not previously known as the financials had been censored. As of January 14, the documents show that BlockFi assets connected to FTX are worth almost $416 million, while loans to Alameda amount to a lot. about $831 million. This is significantly higher than the previously reported figures of $355 million in assets on FTX and a $671 million loan to Alameda. The document also reveals that BlockFi's 125 active employees are being paid generously with a combined compensation of $11.9 million a year. Bloomberg reported that BlockFi is selling off $160 million in loans backed by about $68,000 Bitcoin mining machines as part of the company's bankruptcy proceedings. Some of these loans have

Starting point is 00:26:17 already defaulted and may be under collateralized given the decline in the price of Bitcoin mining equipment. The entity's bidding for the debts will likely be debt collection businesses buying for cents on the dollar. U.S. seizes $700 million of FTX assets. U.S. authorities have taken possession of $700 million worth of assets linked to bankrupt crypto exchange, FTX, and its former CEO, Sam Bankman freed, according to a report from Coin Desk. The government is seeking the forfeiture of these assets on the grounds they are not the property of the bankruptcy of state. The assets in question include $525 million worth of Robin Hood shares, which Bankman Freed purchased with money borrowed from Alameda research, and $171 million in cash from bank accounts tied to FTCS-related entities. The government

Starting point is 00:27:04 seized these assets and more in early January and is now seeking their forfeiture. Furthermore, the DOJ seized $50 million in assets linked to Bankman Freed. This sum was held in Farmington State Bank, a small one-branch institution based in Washington that primarily focused on providing agricultural loans to farmers. The bank had a mere three employees at the time of Bankman-Fried's account creation and had been serving the local community for over a century. Additionally, on Wednesday, FTC's long-awaited creditor list was revealed, albeit with millions of customer names redacted. It turns at the bankrupt exchange owes money to a wide range of companies and individuals. Tech companies include Apple, Netflix, Meta, and Amazon Web Services, and crypto firms such as Chainalysis, Coinbase,

Starting point is 00:27:50 Uculev, and Binance Capital Management are all owed money. Publications include the Wall Street Journal, Coin Desk, and Manzinga, and athletes like Tom Brady and David Ortiz were also in the list, as with Supermodel to sell buncheon. Sam Bankman Fried invested $400 million into Modulo Capital. According to the New York Times, Medulla Capital, an obscure crypto trading firm, received $400 million from Bankment Freed prior to the FTX collapse in November. The firm was founded in March 22 and received one of SBF's largest investments during the attention of investigators. The transactions took place in the third and fourth quarters of 2022. The founders of Madula Capital reportedly had close ties to SBF. One of them, Shao Yan Lili Zhang, had previously allegedly been romantic

Starting point is 00:28:39 involved with Bankman Freed. Modulo is now a key focus of the investigation by federal prosecutors into Bankman Freed and the Exchange. Genesis says it may resolve the bankruptcy soon. Cryptolender Genesis Global Capital expressed confidence that it will be able to resolve its disputes with creditors this week, with a goal of emerging from Chapter 11 bankruptcy by the end of May. According to Reuters, during a hearing in Manhattan, Genesis lawyer Sean O'Neill said, sitting here right now, I don't think we're going to need a mediator. I'm very much an optimist. Brian Rosen, a lawyer for creditors who are owed $1.5 billion in claims, agreed, we are getting closer. The company filed for bankruptcy protection on January 21st two months after it halted withdrawals and new originations. The company listed

Starting point is 00:29:26 just over $5 billion in assets and liabilities in its bankruptcy filing and said that it owed more than $100,000 creditors at least $3.4 billion. Gemini lays off more in employees. Gemini, the crypto exchange battling Genesis, laid off 10% of its staff, according to an internal memo seen by the information. This is the third round of cuts at the company in the past eight months. The co-founder of Gemini Cameron Winklevas informed the staff, known as astronauts, about the layoffs via a message on Slack. He stated that the persistent negative macroeconomic conditions and unprecedented fraud in the industry left the company with no other choice. Gemini employees are not the only ones affected by Genesis' fallout. Luno, a digital

Starting point is 00:30:10 currency group owned a crypto exchange, also laid off 35% of its workforce. Bitcoin Jesus gets sued. Genesis is suing Roger Veer for $20.9 million in damages. Veer, the CEO of Bitcoin.com, has also been long known as Bitcoin Jesus. The lender claims Veer failed to settle crypto options transactions before the expiry date. This is not the first lawsuit against Vier as CoinFlex, a crypto exchange also filed a lawsuit against him in July for failing to repay the debt on his margin position. In a Reddit post, Veer stated that he has enough money to pay the debt, but that he does not feel obligated to do so. Celsius plans to issue a token to repay creditors. Bankrupt crypto lender Celsius is planning to pay back creditors by issuing a new token,

Starting point is 00:31:00 according to a recent report from Bloomberg. The attorney for Celsius, Ross M. Quasteniot, informed a bankruptcy court that the new token would be part of a payout plan from a reorganized company that is properly licensed. However, this plan needs to be approved by a creditor committee before it can move forward. According to CoinDesk, the proposed token is called Asset Share Token, AST. Creditors who are owed an amount of crypto above a certain threshold would receive AST, which they can either retain for potential dividends or sell on the marketplace. The platform's remaining customers would be given a one-time distribution of liquid crypto assets. The lawyers for Celsius

Starting point is 00:31:40 also stressed that despite the recent ruling that assets in Celsius's EURN program are the property of the exchange's estate and not of customers, earned customers would be treated like everyone else in the eventual recovery of assets. Additionally, the mining division of Celsius plans to temporarily house 20,000 rigs that it is currently retrieving from Core Scientific, which could put the troubled firm founded by Alex Mishinsky in a better position. Binance makes a mistake in its accounting. Binance, the world's large crypto exchange, acknowledged that it made a mistake in storing token reserves and customer funds in the same wallet, as per a Bloomberg report. The reserves for nearly half of the 94 tokens issued by Binance, known as B tokens, were stored in a single wallet called

Starting point is 00:32:26 Binance 8, according to the exchanges website. This wallet contains more assets in reserve than are required as collateral for the issued B tokens, indicating that it also contains user assets. Finance issues its own version of ETH, USDC, and USDT to be used on the B&B chain, which are supposed to be backed by one-to-one reserves of the currencies they are based on. However, mixing of B-token collateral with customer assets is against Binance's own guidelines. Earlier this week, Binance also announced that its Swift banking partner, Signature Bank, will no longer support transactions under $100,000 in value. This change comes into effect on February 1st and will not affect credit and debit card purchases of cryptocurrencies

Starting point is 00:33:10 or payments to and from third-party exchanges. Signature Bank is imposing this new transaction threshold to reduce its exposure to the digital asset market. Meanwhile, Binance is on the hunt for a new Swift partner to help facilitate its, U.S. dollar transactions. Shanghai upgrade is closer. Ethereum Core developers announced the successful deployment of a shadow fork, which supports Staked Heath withdrawals as a test for the network's upcoming Shanghai upgrade. The shadow fork went live on Monday, and developers plan to test the upgrade's resilience by deploying evil nodes on both the execution layer and consensus layer. The final version of the Shanghai upgrade is set to go live on the Ethereum main net in March.

Starting point is 00:33:52 It will also allow validators to withdraw the $26 billion worth of ether that sits in the deposit contract. Additionally, the team at Liquid Staking Derivatives Protocol, Lido, proposed a plan to support staked ether withdrawals after the Shanghai upgrade is activated. The process will be asynchronous and will have two modes, a turbo mode to unstake request quickly, and a bunker mode as an emergency plan which will be activated under mass slashing conditions. Moreover, decentralized autonomous organization in XCO-Up launched a new structured product

Starting point is 00:34:24 that will give investors exposure to the ETH liquid-staking derivatives market. Wormhole hacker levers up on staked ether. As Shanghai comes closer, the crypto community is getting excited about the potential for staked eth withdrawals. However, it seems that the hackers are also interested in this new development. Blockchain security firm Sertic reported that the wallet address associated with the wormhole hack, which occurred in February 2022, moved $155 million of Ethereum this week. The funds were moved to the Open Ocean.

Starting point is 00:34:54 decentralized exchange and then converted into Lido Finances staked ether and also wrapped staked eth. The hacker then used the steith as collateral to borrow stable coins and repeat the process. This is the largest movement of these stolen funds in recent months. Speaking of exploits, the FBI announced that the Lazarus Group, a cybercrime organization sponsored by the North Korean government, is responsible for the theft of $100 million in crypto from Harmony's Horizon Bridge in June last year. Lazarus Group has a history of orchestrating cyber attacks and is considered one of the most dangerous organizations in the world. Time for fun bits. Eric Wall immortalizes his enemies.

Starting point is 00:35:35 Have you ever heard of the saying, keep your friends close, but your enemies closer? Well, one crypto enthusiast has been taking that phrase to a whole new level. Eric Wall, one of the best writers and analysts in the industry, is not only keeping his adversaries close, but is also etching their faces onto tungsten cubes. That's right. Eric is building a collection of cubes made of the extremely dense tungsten metal, each engraved with the face of a defeated crypto enemy. But why tungsten, you may ask? Well, it's said to be virtually indestructible and extremely resistant to scratches, kind of like Eric's arguments. As for why he's doing this, who knows? Maybe it's just his way of saying, don't mess with me, or perhaps it's simply a reminder of his past victories.

Starting point is 00:36:15 Thanks so much for joining us today. To learn more about Michael, Grayskill, and GBTC, check at the show notes for this episode. If you like Unchained, please rate or review us on Apple Podcasts. It helps get word out about the show. Unchained is produced by me, Laura Shin, with all from Anthony Youen, Mark Murdoch, Matt Pilchard, Zach Seward, Juan Oranavich, Sam Shrewham, Pamajimdar,

Starting point is 00:36:34 Shashonk, and CLK transcription. Thanks for listening.

Unchained - Why Grayscale Is Suing the SEC Over Its Denial of a Bitcoin ETF - Ep. 448

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