Unchained - With Execs Leaving and Market Share Declining, Can Binance Survive? - Ep. 544

Starting point is 00:00:00 This is a lot for one particular exchange, any company really, but an exchange as consequential as finance to deal with. Binance, US, obviously, the first thing on their mind is sort of trying to fight the SEC and figure out a way forward. I mean, there is a world where Binance can exist where it's not quite as big as it was before. Hi, everyone. Welcome to Unchained. your no hype resource for all things crypto. I'm your host Laura Shin, author of The Cryptopians.

Starting point is 00:00:34 I started covering crypto eight years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the September 15th, 2023 episode of Unchained. Today's episode is brought to you by Overtime Markets, your premier Web3 sportsbook. The innovative protocol is changing the game one match at a time. Powered by fails, explore more at Overtime Markets.xYZ. Arbitrum's leading layer-2 scaling solution offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum. Visit arbitram.io today. Toku makes implementing global token compensation and incentive awards simple. With Toku, you get unmatched legal and tax tech support to grant and administer your global team's tokens. Make it simple

Starting point is 00:01:23 today with Toku. 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 Stephen Erlich, editor of Forbes Crypto Asset and Blockchain Advisor and Director of Research at Forbes Crypto. Welcome, Stephen. Thanks, Laura.

Starting point is 00:01:45 Thanks for having me. Just a heads up, everyone. I have a sore throat in case you can't tell. So you might hear a slightly scratchier voice for me today. There have been a number of news events related to Binance over their last several months to the point where there are now a number of questions swirling around the exchange in its future about potential regulatory and possibly even criminal actions against the exchange and its founders. And then, of course, what all of this could mean for the crypto industry if the exchange

Starting point is 00:02:18 that has been the biggest crypto exchange for the last six years, either falls or at the very least loses its top spot. So, Stephen, can you start by giving us kind of the main events or highlights of what has been happening with Binance over the last several months, including, you know, another big, you know, event this week that have brought Binance to really what feels like an existential point in its story? Sure. How much time do you have?

Starting point is 00:02:50 Because it could take that. I think this is just a 30-minute show. But, no, I mean, in crypto, we kind of feel like, like, every day is a week, every week is a year, every year, is a decade. And for Binance, there's been no shortage of big news. When FTX collapsed in November and sort of left CZ as like the big 800-pound gorilla that really was kind of lording over all of crypto, So there were a lot of thoughts that, hey, maybe this is Binance's moment. It was already the biggest exchange in the world by a large margin, and it just became so much bigger and even more systemically significant.

Starting point is 00:03:32 It's been a very difficult year for Binance. I mean, just beginning with the fact that in the 60 days post-collapse of FTX, more than $12 billion worth of customer deposits left the exchange, a colleague of mine, our terrific director of data and analytics hobby at Paz, a put together report, just talking about these massive investor outflows. The Binance has really worked to try to stem ever since. I mean, then the hits kind of kept coming. I believe it was in February that the New York Department of Financial Services forced Paxos,

Starting point is 00:04:06 which was the issue of Binance's stable coin BUSD, which at one point, I believe, reached over $20 billion in market cap and was seen as a legitimate competitor to Circles the USC and the biggest stable coin of all, Tether, which has a market cap of, I think, $83, $84 billion or so. But DFS forced them to shut it down. I believe that order was also issued concurrently with something that came out of the SEC as well. And that was a really big hit for Binance. It might not have been quite as flashy as the suits from the CFDC and SEC that came in later. But if you're just talking about dollar terms and financial impact, it was massive because

Starting point is 00:04:44 Binance was really trying to make BUSD the biggest statement in the world. They had incentives to encourage trading with BUSD. And in particular, think about what people do. And obviously, Laura, you know this and many people in your audience do as well. When you have $20 billion or $40 billion or $80 billion in cash, you can invest in in treasuries or money markets that are paying 5% annual returns. And that's an incredible amount of money that you can make virtually risk-free, especially in a market like today where trading volumes are dwindling, reserves are dwindling.

Starting point is 00:05:18 It's a really nice way to sort of supplement assets. So that's one thing that happened. In March, the CFTC sued finance for a suite of charges. A lot of it stemmed from the CFTC's allegations that finance was operating as a as an FCM, a futures commodity merchant, basically saying that they're offering like options and futures contracts at various digital assets without registering with the agency, which is required to do in the United States. And then in particular, and this much like the SEC's suit, which came out in June, they both talked about efforts finance went to not only like let US customers participate

Starting point is 00:05:57 on the exchange, but actually help them find ways to get around geoblocking activities that they put in to make sure that the best customers could still trade on the exchange. So there's the CFTC lawsuit in March. There is the SEC lawsuit that came in June. There are rumors that DOJ is investigating Binance and they would bring criminal charges. CFTC and SEC are sort of civil endeavors, which would kind of lead to fines and maybe bars from trading in certain activities. But obviously, DOJ could bring criminal penalties if they bring such charges and are able to get CZ into custody. And then, I mean, there's other aspects too as well. I mean, Binance has been losing payment and the banking partners around the world.

Starting point is 00:06:40 Binance U.S. and June had to become a crypto-only exchange. because they lost their banking partners in the U.S. So they couldn't handle U.S. dollars anymore. They lost their auditor in January. And then on top of that, too, just a wave of executive departures going from the C-suite to country managers. So this is a lot for one particular exchange, any company, really, but in an exchange as consequential as finance to deal with.

Starting point is 00:07:04 It's really been just an onslaught of bad news after bad news. I mean, there's been a few glimmers of, you know, like new product initiatives. and things like that. But, you know, a few other stats I want to throw in there are that spot volumes. Like in terms of its market share, it had about 60% of all crypto exchange volume market share at the beginning of the year. Now, for the last few months, it's been at 45%. And, you know, they laid off 1,000 people, you know, and then actually let's also now mention the executive departure this week that was at Binance U.S. Tell us about that. Right. So, Binance, as you, as you rightfully said, has been losing market share. They remain the

Starting point is 00:07:50 largest crypto exchange in the world, but they are losing market share in this swindling market. I actually believe the latest numbers that came out from CC data put Binance's spot market share, at least at around 37, 38%. Oh, wow. And if you're just looking at their spot volumes, I mean, they were comfortably still about $20 billion daily, even in the beginning of the year. Now it's down to about $5 billion. At the peak, at peak 2021, it was over 60 billion. So, I mean, just think about exchanges make money by taking small cuts of every exchange. And if your volume goes down 80% or whatever, I mean, that's money that you no longer,

Starting point is 00:08:27 that you're no longer getting. And obviously, that's very consequential. And then with the executive departures, as you said, that's something that I know CZ has tried to gloss over. I know when we've reached out to some of the departed executives, and they've either responded to us or to just public Twitter postings, et cetera. I mean, they kind of said things like, we want to take care of a family, the time is right. There was no acrimony involved, so on and so forth.

Starting point is 00:08:55 But at some point, all this takes the toll. And at least with regards to Binance U.S., which is the U.S. I think franchise is the term that they like to use for that particular exchange. They're in a very tenuous situation right here. I mean, even before, and I'll talk about Brian Schroeder's departure in second, I believe right now, I just checked the numbers before we recorded this. They're averaging about 20 million, not billion, not 200 million, but 20 million dollars a day in transaction value. 10 million of which is Bitcoin. I believe that I think they charge something like 10 basis points

Starting point is 00:09:29 per trade. So if you think about that like 20 million times point one, I'm not really good at doing math in my head. I use a calculator for that despite the fact that I'm a financial journalist, but you can just think about the how little money that actually is coming in. And then obviously there's since Binance U.S. was created in 2019, there's always been issues and questions about its independence from the larger exchange and would it actually be able to kind of find that sweet spot of separating itself in the eyes of regulators while maintaining sort of that the Sieber Sosa has made Binance a love brand by many customers and they've gone through three CEOs at this point, Brian Schroeder just resigned. I was speaking with some sources familiar with with Finance US and I was

Starting point is 00:10:11 basically told that this was not a planned departure, that the 100-person layoff was, but the removal of CEO, Brian Schroeder, the exit of him was not. I've also been told that it's important to kind of keep an eye off some of his key lieutenants now. Because remember, when he joined, one of the first things that he did was raised a $200 million actually seed round at a $4.5 billion valuation. That's something Brian Brooks, his predecessor had wanted to, but he wasn't able to finish it. Brian Schroeder did. And then for part of that, I kind of saw Binance U.S. as a growth company. He brought in some key lieutenants, chief legal officers, chief risk officers. And I think that now that finance U.S. is kind of moving

Starting point is 00:10:55 away from obviously growth like any exchange to sort of conservation, it's important to look at some people he brought it and they may be looking to leave. And actually, one of the sources I was just speaking with told me that their chief risk officer, Sidney Majala, and I want to look at my nose to make sure I don't get the names wrong. And head of legal, Krishna Jubelty, have actually emails that have been sent to them by some of the other ranking file have started to bounce back. So I don't know if that necessarily means that they may have already left, but it's certainly I think it's important to, now that Brian has gone, see if some of those people that he brought in after he raised this big round with a lot of high expectations if they are going to follow suit. In a moment, we're going to talk about some of the potential regulatory or potentially even criminal actions against finance and its executives. The first, a quick word from the sponsors can make this show possible.

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Starting point is 00:13:11 Leveraging the benefits of decentralization and blockchain technology, Overtime leads the charge in innovation, all the while offering fans juicy token rewards for sports events. Overtime supports over 40 leagues and utilizes advanced smart contracts to ensure a seamless user experience. Discover the future of sports trading at OvertimeMarkets.XYZ. Back to my conversation with Stephen. So as we discussed earlier in the show, there's this lawsuit by the CFTC against finance and its executives. And that document laying that out, it had some pretty, oh, that's the word, I guess shocking details of chats amongst the executives, you know, appear to be turning a blind eye to money laundering and things like that. But, you know, when you look at sort of all, you know, the CFTC one, the SEC, then there's these.

Starting point is 00:14:03 hints around, you know, potential criminal action by the Department of Justice. What are your thoughts around that? Like, why have we not actually seen an action from DOJ yet? Because there have been a few things that have been linked. Like in the Wall Street Journal, I think the department is potentially internally arguing about whether or not they even have enough information to actually go after them. But go ahead and, you know, sum that up and tell us your thoughts on sort of what really is hanging over its head when it comes to the regulatory sphere. Laura, I'm glad you asked this question because I try to think of it in a few different ways. I mean, for one, the allegations, and again, as graphic and shocking as they are, as you kind of alluded to in the CFTC and SEC's complaint, again, they are still allegations until this gets proven in court.

Starting point is 00:14:52 And obviously, Binance has, and Binance U.S. in particular, has chosen to defend itself. My source actually at Binance U.S. told me that they feel somewhat emboldened by ripples, at least a modicum of success against the SEC in its respective lawsuit, especially with relation to the summary judgment that decided that programmatic sales of XRP did not constitute legal securities offerings. But all that aside, regarding the DOJ, it's hard to know because, I mean, these enforcement agencies are very tight-lipped. takes a while to build a case. And again, if you go back and read the CFC and SEC's complaints, which we both have done, they're incredibly detailed. So that stuff doesn't quite happen

Starting point is 00:15:38 overnight. And when there is something to be revealed, it will be revealed. But I think another interesting way to look at the question is, like, what would be the impact of all this? I mean, again, like the scouragement, bans from participating in regulated activities. I mean, sure, that's something. It's legitimate to wonder about the future of Binance, US, with everything going on here. The DOJ can bring criminal charges, but I mean, CZ, I'm sure, has been following what's going on with Sandbank retreat is going on trial for a couple of weeks. And if the DOJ brings charges, I suspect he'll be very careful to make sure he doesn't step into the U.S. or in a country with some sort of extradition treaty with the U.S. So if the idea is that

Starting point is 00:16:21 finance may not, or at least the finance international exchange, it may not face any major real real penalties from all this or new mutual fallout, then what's the harm? And I think the harm then comes from just customer sentiment. I mean, one of the other, I was reading an article yesterday that highlighted how, while Binance is losing market share in the market, they're not losing it

Starting point is 00:16:40 to people like Coinbase. They're losing it to some of these other smaller exchanges that are still dabbling in those exotic tokens that don't quite have some of the reputational baggage that that Binance has brought on. So customer fear about seizures, customer fear about, and the SEC

Starting point is 00:16:55 lawsuit in particular talked about commingling funds, allegations of commingling funds of funneling $20 billion of customer funds to trading firms, Merit Peak, and I believe the other one was called Cignam that Binance controls, one of which was allegedly used to facilitate watch trading of Binance U.S. Those are things that are going to cause customers, thanks. Pavia Paz and I published an investigation in March where we documented how finance took at least $1.8 billion for a wallet meant to be collateral for a stable coins issued by finance and used it to mid-war B-USD. So things like that are what can cause customers to, that loss of trust, even among people

Starting point is 00:17:37 that may not trust governments themselves or the U.S. government in particular, that's what could really hurt them, I think, most importantly. And there is another really interesting development from late August, which is that that C-C submitted a document in its case against finance under seal. And John Reed-Stark, the former 11-year chief of the SEC's Office of Internet Enforcement, tweeted that he couldn't even recall seeking to file a motion or any other court document under seal. He was saying because the SEC does civil actions, not criminal actions, that all of it, not all, but, you know, like the vast majority of its actions are public.

Starting point is 00:18:17 And he had a few theories about why it might have been filed, sealed. you know, what have you seen in terms of the theories about, you know, why that was? Yeah, this is a fun one. I'll call it the crypto Schrodinger's cat for anybody that that follows psychology or has watched the Big Bang theory. Because really, it could be anything. I mean, it could be the smoking gun that brings down Binance the entire crypto world. You know, obviously I'm kind of being a bit jocular here. But it also could be something, I wouldn't say the word benign because obviously these are, I mean, these are serious documents.

Starting point is 00:18:51 but it could be as simple as information containing PII, personally identifiable information, which if you're in the U.S. or I guess we're talking about the U.S. here, falls under pretty strict protections and that has to be safeguarded. And really, nobody knows. It could be one or the other. It could be something in between. And obviously I saw John Rie Stark's comments. Actually, saw him speak last Thursday at a conference, a Fintech conference host about.

Starting point is 00:19:21 the Philadelphia Fed. Sources within Binase U.S. have told me that they're not entirely sure what's in it either. And then I also spoke with a lawyer or two that aren't involved in the case, but are obviously very well-formed about just securities, regulations, securities enforcement and everything going on. And they also told me that there's really no way to know until or if they get unsealed. And anything else, I mean, obviously John R. Stark has had a long background. I mean, he's certainly an educated person and speaks.

Starting point is 00:19:51 from a position of authority, but the only people that truly know are the ones that drafted documents. And the only thing I would say is to people not to jump to conclusions one way or another. We'll find out soon enough if we need to. Yeah, yeah. But one of the theories that I did want to mention, it goes back to the earlier question about the DOJ. They were saying that potentially the document might have revealed details about either a criminal investigation by DOJ or they might have just wanted to seal it to protect informants or whistleblowers. And there was even a theory that Sam Bingman-Fried might be the person who was informing on Binance. I mean, in this industry, anything is believable.

Starting point is 00:20:36 And all those, I mean, to be frank, all those seem plausible to me as well. I mean, DOJ has brought a number of criminal indictments on often concurrently or shortly following suits and filed by the civil authority. So again, I wouldn't be surprised about anything. And I would definitely not be surprised if the DOJ brings action against finance. I think it's important for people to just be careful about. And again, it could be something horrible, not. But the idea that it's some sort of red smoking gun that's going to be the end of all this,

Starting point is 00:21:11 it could be, but there's also a good chance that it's not. And I think that's where it's important for people to kind of calibrate expectations. Yeah. So speaking of FTX, let's just address one of the rumors that I've seen floating around, which is that finance could be another FTX. I'm sure you've seen some accounts floating this theory. And by that, I think what they mean is that it's insolvent. And if all the customers try to withdraw their funds, then there wouldn't be enough crypto assets to meet all the redemptions. what do you think of this? Is there any evidence to indicate that this is the case? You know, why do you think this theory is being floated?

Starting point is 00:21:52 Another great question, Laura. There's plenty of reasons why the theory is being floated. I mean, again, these are two of the three largest exchanges in the world, at least going back to when FTCS was in operation. Binance, just like FDX is run by a very strong figurehead that has, I would say, a cult following within the crypto ecosystem. the fortunes of the company are very much tied into belief in the capability of this leader. They both offer what's called an exchange token, which is kind of sort of like stock, but not really.

Starting point is 00:22:22 And people, they offer certain trading benefits and other, like other valuable things, but don't offer any actual equity or in the company, but people buy them because their fortunes are seen to be tied to the fortunes of the founder. But I think probably the biggest reason, and you kind of hinted out it, is questions of whether or not, finance is solvent. I mean, they've gone through a few different exercises on putting out proofs of reserve. I know they did one with an accounting for Paul Mazar's that ended up dropping them in the entire crypto practice. I believe they now publish a proof of reserves on their own website, which is good. But, I mean, as you know, and I'm sure plenty of people listening

Starting point is 00:23:03 know, too, a proof of reserve is not even close to an audit. An audit will look at flows in and out over time, it'll look at liabilities to make sure that assets are not, are not encumbered elsewhere. And it just goes into a lot more proof and reserve. Sometimes I call it like staging a house. Like if you know where it's going to be, you can bring in funds to make sure you match it. And then you can say, well, if you do a proof of reserve every two days, maybe then it's harder to fake it. But a proof of reserve that when I'm trying to make is not an audit.

Starting point is 00:23:33 And one of the ways I think some people tried to say back months ago is that finance is not FTX is because Binase did not have an equivalent of Alameda. Alameda was the sister trading fund of FtX founded by Sandbeck-Mefreet. There were always questions about how close the two companies actually were. Sam said that they were independent, but he was still the majority owner of Alameda. And obviously, those two companies were much more closely entwined than anyone had probably ever thought. And at least finance didn't have that.

Starting point is 00:24:05 But then, again, we found evidence. I mean, we published it in March, Javier and I. about how they were sort of misappropriating, of that sort of term, tokens from wallets that were supposed to be used as collateral to mitt more, more BUSD. And this was collateral for USC, which meant that if all the outstanding, I guess, I think it was $1.8 million with USC held by finance users, tried to go and redeem it, they would not be able to meet those redemptions,

Starting point is 00:24:32 at least without bringing in other funds. That's a concern. the SEC allegations about customer funds moving into entities, other entities controlled by finance that are not really disclosed, that's also a cause for concern. And one other thing I'd like to mention, too, when we were writing that report in March, we interviewed their then chief strategy officer Patrick Hillman, who's one of the executives that resigned, I guess it was about a month or two ago, and then asked them about some of these token flows, because, I mean, as you know, good journalistic practice is always to give someone

Starting point is 00:25:05 you're writing a story about a chance to respond in case we make errors or they want to provide clarification and so on and so forth. And the answer that we got from him was really, was really interesting to us in illustrative. He essentially said at the time that finance was keeping two sets of books. Like one were the wallets themselves where that people could watch. And then they also had their own internal ledger. And the two didn't always necessarily match up and basically that we had to trust them that they were going that they knew like what assets were owed to who and and and for what and obviously that was concerning to here and then on top of it it also sort of repeats the whole sanctity of proof of reserves to the sense that that

Starting point is 00:25:47 there is one because if what Patrick Hillman and again he's he's not there anymore but what they're saying is that we can't necessarily always go by what's in particular wallets that then what's the value of doing proofs of reserve. So I think your question was like, is this going to be an FDX? What is the evidence? That's a very big allegation. And I mean, obviously, I'm not a position to say that. And anyone who does is probably editorializing more than anything else. But we start seeing little pieces of information suggesting that the finance is perhaps not being as scrupulous as they can be when it comes to accounting practices. And that's where things can kind of get into trouble. So this has been such a great summary of all the happenings with finance. Why don't you just leave us with your prognosis for the future of Binance U.S. and also the future of finance? Where do you think they go from here?

Starting point is 00:26:39 Two easy questions. I mean, so Binance U.S., obviously the first thing on their mind is sort of trying to fight the SEC and figure out a way forward. They claim to have several years of runway following these recent layoffs, and they're going to need it because at least based on the numbers that I sketched out for you earlier, the revenue is minuscule and it's going to be for the foreseeable future. But maybe that's okay. I mean, their new interim CEO, Norman Reed, if you look up this background, maybe he worked at the DCCC, he worked at the SEC. see, I mean, he's seen as like a compliance, regulatory, honest, honest guy. And maybe that's what finance US needs right now to just kind of stay afloat before it could try to catch the next bull run if and when it comes. So, I mean, that's something to keep in mind for finance US. But again, I mean, they're at least according to the latest numbers I saw, $20 million in daily value,

Starting point is 00:27:38 which is virtually nothing. And they're going to have to find a way to grow that. But they also have to live to fight that that next day. Related to finance, again, it's hard to, it's hard to tell. I mean, there is a world where binionists can exist where it's not quite as big as it was before. I mean, it happens in traditional industry all the time where somebody gets, I wouldn't call Binance having a monopoly because obviously that's not true. But, I mean, they dominate the market and maybe they become smaller. I mean, they're pulling back from several countries. I mean, they recently they pulled out of Canada. They pulled back from Germany.

Starting point is 00:28:14 They pulled back from Netherlands. And I mean, I could mention many, many others. And maybe they pull back for trench. They focus less on split-scale, rolling out new products and just trying to service their core customers. And maybe that's how they, maybe that's how they exist. I mean, all the allegations surrounding them, I mean, we still hear about their great matching engine, their great performance, good customer service. I mean, those things can be true. even if all the other stuff is true too, which I guess we'll have to wait for more reporting

Starting point is 00:28:44 and potentially illegal cases to play out. But then there's also a world, I guess, where if some of the worst fears come to fruition, where Binance could end up imploding. And obviously, that would reverberate around the crypto ecosystem as well. We just kind of have to really wait and see. But I think the most important thing maybe to leave you and your listeners with is that I still think that, I mean, crypto survived the collapse of FDX, they survived the collapse of BlockFi and Three Arrows and Celsius, and I can mention several others. It would also survive the collapse of Binance,

Starting point is 00:29:19 that that's actually what ends up happening. But again, that's probably a step too far at this point. So we'll just have to keep watching. All right. Well, thank you so much for giving us this amazing recap of all of these events that, yeah, just, I mean, there was like this. constant drip of news. And I've just never had a chance to put it on the show. But when you add it all up, it's like, wow, there's a lot going on there. Thank you, Laura. This was a great opportunity for me as

Starting point is 00:29:46 well to just kind of think about everything. And it's just amazing everything that's happened since the beginning of COVID to now. And if we're writing a book, I feel like we're still sort of in the first couple of chapters. There's still a lot more to go. Yeah, I would agree. Thanks so much for coming on Unchained. Thank you. Don't forget. Next up is the weekly news recap. Today, presented by veteran crypto reporter and Columbia University Night Batchett Fellow Michael Del Castillo. Stick around for this week in crypto after this short break.

Starting point is 00:30:19 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. Hello and thanks for tuning in to this week's Unchained Weekly News Recap.

Starting point is 00:30:54 I'm Michael D'Akastio, a Knight Badget Fellow at Columbia University. In the latest of a series of developing events, the collapsed crypto exchange FTX, which filed for bankruptcy last November following alleged criminal mismanagement is navigating through significant legal and financial turmoil. The exchange received approval from U.S. bankruptcy judge John Dorsey in the District of Delaware to sell $3.4 billion in crypto assets, including substantial holdings in Bitcoin, Ethereum, and Solana, to repay creditors and recover from a $7 billion deficit. In what appears to be a move to prevent spooking the market, the sale, managed by Galaxy Digital, plans to liquidate up to $100 million worth of tokens, a figure that could

Starting point is 00:31:39 potentially increase to $200 million, according to the plan. Simultaneously, Bahamas-based FTX initiated legal action against cross-chain protocols layer zero labs, seeking to recover over $21 million in what its lawyers called, quote, avoidable transfers, end quote, that occurred in the 90 days leading up to its bankruptcy declaration. A lawsuit alleges, fraudulent agreements and share transfers orchestrated between FTX subsidiary Alameda researchers, then CEO Caroline Ellison, and Layer Zero. The exchange accuses Layer Zero, its former chief operating officer Robert Leighton, and others, from attempting to circumvent Chapter 11 regulations and transfer substantial amounts of various tokens from Alameda to Layer Zero's control.

Starting point is 00:32:27 Also this week, a court filing covered by the block disclosed FTX's, substantial marketing and sponsorship payments to notable figures and organizations, including none other than NBA Hall of Famer Shaquille O'Neal, Major League Baseball Hall of Famer David Ortiz, tennis star Naomi Osaka, and NFL quarterback Trevor Lawrence, among others. As a monumental trial of former FTX CEO Sandbank-Mindfried rapidly approaches, his defense submitted a series of probing questions to the U.S. District Court for the Southern District of New York, seeking to gauge jurors' opinions on cryptocurrency, their body language, and perhaps in a hat-tip to Bankman Fried's advocacy for the concept of selecting funding recipients based on data,

Starting point is 00:33:12 so-called effective altruism. Meanwhile, Bankman Fried's defense alleged inaccuracies in the Department of Justice's claims regarding their client's laptop access during his incarceration. The legal team emphasized that he had poor internet access connection during the time period he was allowed to use a laptop, hindering his ability to prepare adequately for the trial. This comes and made accusations by the DOJ of witness tampering that have seen Bankman Fried denied bail, with Judge Lewis Kaplan noting that the time pressure the defendant claims is, quote, largely of his own making, end quote. That's a particularly harsh stance since Bankman Fried faces myriad charges, including fraud,

Starting point is 00:33:56 with potential imprisonment exceeding 100 years and is, slated to stand trial in less than a month on October 3. As for Bankman-Fried, his defense team accused the DOJ of attempting to obstruct a fair trial by seeking to exclude proposed expert witnesses. The U.S. Securities and Exchange Commission has clamped down on the Stoner Katz NFT project, promoted by notable figures including Mila Kunis and her famous husband, Ashton Coucher. The project, which raised $8 million through the sale of 10,000 NFTs to find financed animated series has been charged with offering unregistered securities. Gerbera Griewal, the director of the SEC's Division of Enforcement,

Starting point is 00:34:39 emphasized that the economic reality of an offering, not its label, determines its classification as a security. Orchestrated by Stonericat's 2 LLC, the project utilized a potent marketing strategy highlighting the creator's Hollywood credentials and potential high resale values. It worked, to put it mildly, with the collection, selling out in just 35 minutes and accumulating over $20 million in secondary sales. Despite not admitting to any wrongdoing, SC2 has consented to a cease and desist order and agreed to pay a $1 million penalty,

Starting point is 00:35:14 according to the SEC statement, which did not name the founders. Furthermore, the company pledged to establish a fund to reimburse impacted investors and to burn all Stuner Kat NFTs in his possession, according to the statement. Crypto lawyer Mike Selig wrote in a social media post, quote, The SEC is looking for PFP offerings as akin to 2017 vintage ICOs. Same marketing mistakes can be deadly, end quote. This case marks yet another instance of the SEC's stringent oversight of celebrity-endors Crypto Ventures, such as the one backed by Kim Kardashian, who has fined $1 million for her role.

Starting point is 00:35:53 Still, some are noting the irony that the SEC catches celebrities, but missing, is the big blow-ups like FTX. Masari founder and my former boss at CoinDesk, Ryan Selkiss, wrote on social media, quote, your tax dollars at work, end quote. Connecticut Pace Digital Currency Group, otherwise known as DCG, the parent company behind the beleaguered lender Genesis Global has put forth a proposal that could see users of Tyler and Cameron Winkle Voss's Gemini Earned program reclaiming between 95% and 110% of their assets. Whatever the amount ends up being, this initiative file on Wednesday promises a significant

Starting point is 00:36:34 recovery rate. The recovery strategy, however, hinges on the sale of 30 million shares of the gray-scale Bitcoin Trust valued at approximately $670 million, pledged as collateral by Genesis to Gemini. Gemini previously said it would help make its users whole up to $100 million if they weren't paid out in their entirety. The proposal comes amid a back-trade-up to $100 million. The proposal comes amid a back-trade of legal disputes and regulatory scrutiny, with both Genesis and Gemini phasing accusations from the SEC of selling unregistered securities. Despite the ongoing challenges, this proposal, pending approval, does in fact offer a glimmer of hope to affected investors. In the latest development surrounding the beleaguered Celsius network, former CEO Alex Monszczyk is embroiled in a series

Starting point is 00:37:21 of legal battles, following the freezing of his assets, including multiple bank accounts and a home, as ordered by the U.S. Department of Justice, Moschinsky is now fighting back against a lawsuit filed by the Federal Trade Commission. In a motion to dismiss the lawsuit filed on Tuesday, Moschinsky's legal team argued that the FTC has failed to substantiate any violations of laws or rules by him, emphasizing that the commission is not entitled to monetary relief. Interesting to see how that one plays out. This move comes after Moschinsky faced severe charges,

Starting point is 00:37:56 including securities fraud and wire fraud, leading to his arrest in July. In related news, Rony Cohen-Pavon, Celsius's ex-chief revenue officer, pled guilty to several criminal offenses in the U.S., according to a report from Reuters. This verdict comes after accusations of engaging in fraudulent activities, including market manipulation and securities fraud, primarily concerning the inflation of Celsius crypto-token prices. Cohen Pavone, who reportedly profited immensely from his scheme, now faces up to 65 years in jail. Hong Kong Cryptocurrency Exchange CoinEx is believed to have been attacked by North Korean hacker group Lazarus,

Starting point is 00:38:40 according to blockchain security researchers Slow Mist and Zach XBT. Initial estimates suggested losses of around $27 million, was later evaluations increasing the estimate to over $55 million strain from the exchange's hot wallets. The Hong Kong-based exchange assured users that their assets are secure and promised full compensation for the affected parties. The exchange has temporarily halted deposits and withdrawals to ensure security measures and its actively investigating the incident, promising a detailed report soon. The controversial Malady NFT collection, simultaneously known for its popular anime picture profiles and for its creator resigning after admitting to racist writings, encountered yet a

Starting point is 00:39:26 another setback this week. After co-creator Charlent Fang confirmed in May that she pseudonymously wrote racist articles and resigned from her leadership position, she resurfaced on Monday, claiming on social media that an attacker had seized control of social media accounts associated with the project, including Malady Maker and Remillionaire. In the social media post, Fang claimed an unnamed developer within the Malady ecosystem had orchestrated a scheme, diverting about $1 million in fees from the Remilia Corporation, the supposedly decentralized autonomous organization or Dow behind the Malady Maker project. This exploit primarily impacted the revenue generated from Bonkler, an experimental finance art project initiated in April 2023, according to Fang, who added that,

Starting point is 00:40:15 quote, only Ramelia's revenue from Bonkler was compromised, end quote. She further claimed that the main contract, NFTs and Bonkler reserves were still secure, going, on to vow to pursue the culprits, quote, with the heavy hand of the law, end quote. In a startling error, crypto service provider Paxos has been identified as the entity that mistakenly paid a staggering $19.89 Bitcoin, approximately $500,000 in transaction fees, to transfer a mere $0.008 Bitcoin, or about $200. The incident, which occurred on Sunday, set a new record for the highest transaction fee paid in a single Bitcoin transaction. A spokesperson from Paxos confirmed the mistake to the block, stating it was due to a bug in a single transfer,

Starting point is 00:41:07 and sought to assure users that efforts are underway to recover funds from F2P, from F2 pool, the mining pool that processed the transaction. The spokesperson emphasized, quote, Paxos clients and end users have not been affected and all customer funds are safe, end quote. However, an F2 pool co-founder has expressed annoyance and even regret about potentially agreeing to refund the amount, turning the matter over to a social media questionnaire. Results to be determined as of the time of this recording. For those of you looking for a funny way to end your week, the founder of CryptoExchange Thodex was sentenced to over 11,000 years in prison. Not that that's a

Starting point is 00:41:51 laughing matter, but take a listen to what stand-up comedian Ginny Hogan has to say about the matter. But X was one of Turkey's largest crypto exchanges until it went offline in 2021. And its CEO, Faruk Fati Ozer, went missing. About a year later, he was arrested in Albania, meaning that Andrew Tate is no longer Albania's most recent celebrity stow away. Truly, though, Albania feels like the wet version of Burning Man. After that, Ozer was extradited to Turkey, where just this week, he was sentenced to 11,000 years in prison. 11,000 is enormous. That's like the number of women SBF has slept with times 11,000. He also faces a fine of $5 million, so I guess once he gets out of prison in 11,000 years, he's going to have to get a job.

Starting point is 00:42:31 Before this, Ozer was already in jail for failure to submit his tax documents. I had no idea you could go to jail for that. In America, that just means you have to serve as an elected official. Two siblings have also been sentenced to jail, which I think is very good. This way, his parents can never be like, ugh, why can't you be good, like your older sister? In America, we also dole out tough punishments for our crypto fraudsters. SPF has been charged with a similarly tough sentence. No access to almond butter.

Starting point is 00:42:57 And that's all. Thanks so much for joining us today. Unchained knows it's very hard to keep up with the latest news in the crypto ecosystem. That's why they have a daily and weekly newsletter to get you covered. Sign up for free and receive the latest insights right in your inbox Monday through Friday. Check out the show notes and subscribe to their substack. today. Unchained is produced by Laura Shin with help from Kevin Fuchs, Matt Pilchard, Juan Aronovich, Megan Gavis, Ginny Hogan, Shashank, and Margaret Curia. This weekly recap was written by Juan

Starting point is 00:43:32 Aronovich and edited by myself Michael Del Castillo. Thanks so much for listening. Looking forward to chatting with you next week. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily seven days a week with new host, Noel Atchison. Follow the CoinDesk podcast network for some of the best shows in crypto.

Unchained - With Execs Leaving and Market Share Declining, Can Binance Survive? - Ep. 544

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