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About that Axie-Ronin hack

On March 23, a hacker stole an eye-watering $625 million in crypto from the Ronin network, the blockchain powering the popular play-two-earn game Axie Infinity.

Six days later, the hack was discovered. Where was Axie cofounder Jeff Jiho Zirlin on that day? He was at a party in Los Angeles caught off guard by the press. (CNN Business)

“Shortly after his first interview, which was on the record and recorded, Zirlin asked if CNN could run his answers by his PR team before publishing. CNN declined the request.”

Axie originally ran on Ethereum. But since Ethereum is too sluggish and costly to use, it now runs on Ronin. How do you get your ETH onto Ronin? The Ronin Bridge. 

In the world of DeFi, a bridge lets you use crypto from a different blockchain.

The Ronin bridge locks up ETH, the native crypto of Ethereum, and issues a token on the Ronin sidechain that represents ETH called wrapped ETH, or WETH.  

Molly White wrote a post describing how everything works. A bridge is like a casino where you trade in your actual money for casino chips. Someone robbed the money and now you’re stuck with worthless chips. (Blog post)

Bridges are a honeypot for hackers. Qubit Bridge, Wormhole Bridge, Meter.io Bridge, and Poly Network Bridge have all suffered similar fates.

Why does this keep happening? David Gerard says DeFi is akin to a piñata. “You whack it in the right spot, and a pile of crypto falls out.” (Blog post) 

Ed Zitron points out that the real ones suffering from the Ronin hack are not the investors, the developers, or those in power, but regular folks who needed the money. (Substack)

The hackers are now in the process of cleaning their ill-gotten ETH. After a six-day head start, they sent $70 million in ETH through privacy mixer Tornado Cash. (Decrypt)

Venture capitalists need P2E

Venture capitalists are betting big on play-to-earn games, like Axie. A hack this size should put Axie and its developer Sky Mavis out of business, however, this is crypto.

Axie is backed by a16z. The Silicon Valley VC firm also has a big stake in Yuga Labs, which is transforming itself into a P2E gaming company as I type. Even though its founders have zero experience in gaming. I predict someone will bail Axie out with magic beans shortly. (My blog post)

In fact, Sky Mavis just raised $150 million in a funding round led by Binance, a leading Tether exchange, with help from the usual suspects, including a16z. (Substack)

Gensler wants Coinbase to register with the SEC

The SEC is weighing a path forward for Coinbase, and other crypto exchanges, so they can register with the agency. (FT)

Coinbase is not registered as a securities broker-dealer, even though the majority of tokens that it lists resemble securities. SEC Chair Gary Gensler has been urging Coinbase to submit to SEC oversight for months.

In speaking at Penn Law, Gensler said that he’s asked his staff to work with the CFTC to find ways to “register and regulate platforms where the trading of securities and non-securities is intertwined.” (Prepared remarks)

Crypto exchanges trade both crypto commodities and crypto securities, so Gensler wants to get the CFTC involved as well. 

Since crypto exchanges also custody crypto assets and act as market makers, he also wants to see if it makes sense to separate custody and market-making. 

Gensler’s comments come just weeks after Yuga Labs launched Apecoin, which resembles an unregistered securities offering. The same day Apecoin launched, it was listed on Coinbase.

SEC rejects yet another bitcoin ETF 

The SEC rejected an application for a spot bitcoin ETF led by Cathie Wood of Ark Invest. (SEC form S-1, SEC order, Decrypt)

The regulator rejected the application for all of the same reasons it has rejected every spot bitcoin ETF application put before it in the past: fraud, manipulation, wash trading, manipulative activity involving Tether, and so on.

At this point, the SEC is simply copying and pasting text.

Grayscale is clinging on to hope. The asset manager is so desperate to get its application for a spot bitcoin ETF approved that it is threatening to sue the SEC. (Bloomberg)

It’s also running a targeted ad campaign — taking over the entire advertising space between two mass transit hubs and their Amtrak trains for three months, so bitcoiners will drown the SEC in comment letters. (Business Insider)

The SEC’s deadline to rule on Grayscale’s application to convert its $30 billion GBTC into a physically-backed ETF is July 6. 

GBTC is now trading at 25% below NAV, meaning that investors, who are subject to a six-month lockup period, are losing money compared to those buying BTC directly. In addition, the fund has an investment minimum of $50,000 and an annual management fee of 2%. 

Grayscale CEO Michael Sonnenshein says the SEC has created an unfair playing field and forced investors into a futures-based bitcoin. 

There is a good reason why the SEC will allow a bitcoin futures contract and not a spot bitcoin ETF. Doomberg wrote a great post explaining it, which I highly recommend reading. (Doomberg Substack)

It comes down to this: Bitcoin futures are settled in cash, and the direct flow of dollars never enters the crypto ecosystem. In contrast, bitcoin spot ETFs are designed to buy and hold bitcoin directly, injecting much-needed U.S. dollars into the crypto universe. 

The bitcoiners need a bitcoin spot ETF because utility companies don’t accept tethers, and miners need to pay their power bills. Galaxy and DCG are propping up the U.S. miners. They’ve been lending U.S. miners money so they don’t have to sell their “stockpile” of freshly mined BTC.

Germany takes down Hydra

German federal police — known as the BKA — shut down Hydra, the largest Russian darknet market for selling drugs and money laundering. 

Working with U.S. law enforcement, BKA seized Hydra’s servers in Germany, along with 543 BTC ($25 million). (BKA statement, US Dpt. of Treasury press release) 

In conjunction with the shutdown of Hydra, the DOJ announced criminal charges against Dmitry Olegovich Pavlov, the site’s alleged operator.

Since it launched in 2015, Hydra facilitated more than $5 billion in transactions for 17 million customers. The site was written in Russian and most of its drug-related business was with sellers in Russia, Ukraine, Belarus, Kazakhstan, and surrounding countries. (Elliptic)

Hydra was more than just a drug market. It offered a mixing service to launder dirty crypto and exchange it for rubles, taking in $200 million in stolen crypto in 2021 and early 2022 alone. 

Vendors on Hydra even sold bundles of rubles for bitcoin, buried in dead drops for customers to dig up. (Wired)

Hydra was also used to launder funds from the 2016 Bitfinex exchange hack

The BBC has a story on how the police sting began with a tip-off and led to finding the “bullet-proof” hosting company in Germany. (BBC)

Elsewhere in crypto

Bitcoin miner Riot Blockchain produced 511 BTC in March and holds 6,062 BTC. Why are they holding? Coindesk didn’t bother asking. (Coindesk)

HIVE Blockchain released its March 2022 mining figures. It produced 278.6 BTC and over 2,400 ETH. As of April 3, 2022, HIVE is sitting on 2,568 BTC and 16,196 ETH. (Yahoo Finance)

I guess miners figure bitcoin will go up in price forever. Or may there is just nobody left to sell it to?

Crypto hacks in the first quarter of 2022 have amounted to $1.2 billion in crypto — that’s up nearly 700% from the same period last year. Web3 is going great. (Techcrunch) 

Buzzfeed did an in-depth story on Worldcoin, a bizarre crypto project that involves scanning the retinas of people in Africa and elsewhere in the global south in return for crypto. But with Worldcoin’s token yet to launch, participants feel robbed. (Buzzfeed)

Worldcoin is backed by Y Combinator President Sam Altman, a16z, and Khosla Ventures. It’s raised $100 million in funding so far.  

After purchasing 9.2% of the social media giant, Elon Musk has become the largest shareholder of Twitter. He also got a Twitter board seat. (NYT)

MicroStrategy purchased another 4,167 BTC for $190 million. It took out a loan against its bitcoin holdings to buy more bitcoin. What could possibly go wrong? Michael Saylor’s company now holds a total of 129,218 bitcoins. (SEC form 8-K, Bloomberg)

Federal prosecutors in Miami seized $34 million worth of crypto in one of the largest crypto forfeiture actions ever filed by the U.S. (DOJ press release, Miami Herald) 

After the horrible Kevin Roose story, the New York Times interviewed crypto critic Dan Olson to get his views on crypto. This is worth a listen. The transcript is also available. (Ezra Klein show, transcript)

Crypto investor Katie Haun has raised $1.5 billion for her new firm Huan Ventures after leaving a16z last year. (Wired)

Crypto asset funds are seeing surging assets under management. A16z’s crypto-focused funds are worth around $9 billion.(Cointelegraph)

While the SEC drags its feet to enforce securities laws, which are clear and have been in existence since the 1930s to protect investors, the powers-that-be are gathering more money to invest in token projects. 

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