You might think that, come the artificial general intelligence, humanity will enjoy a world of unlimited abundance and prosperity for all, beyond money, under the watchful sensors of the superintelligent AI.
But Silicon Valley bros talking up the Singularity still want to win at capitalism. So alongside OpenAI, Sam Altman’s other big project is a cryptocurrency called Worldcoin — which just rebranded to World Network, or World for short, to slightly reduce the coiner stench.
Altman gives away worldcoins free! He’s just nice like that, see. He makes sure coins only go to individuals by … collecting scans of their eyeballs.
Now, you might think Worldcoin was some sort of crypto pump-and-dump with a sideline in exploitable personal data.
This one’s written for the AI haters in particular — though it’s a crypto post at heart — so it’s over at Pivot to AI.
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“i cant wait until we get julain assange out of jail using Crypto. itll make all the pedophile money laundering worth it”
Sam Bankman-Fried’s bail has been revoked for witness tampering — specifically, that he shared ex-girlfriend Caroline Ellison’s private diary with a New York Times reporter. This was the last straw for Judge Lewis Kaplan, who said the documents were “something that someone who has been in a relationship would be unlikely to share with anyone except to hurt and frighten the subject.”
Previously, Sam tried to get in touch via Signal with another witness, former FTX US lawyer Ryne Miller, about getting their stories straight — which nearly saw Sam’s bail revoked that time.
Our hero is currently at MDC Brooklyn — notoriously one of the worst jails in the federal system — but the government has asked that he be remanded at Putnam, where he’ll be allowed more computer access to prepare for his upcoming trial on October 2.
Inner City Press live-tweeted the entire hearing. Sam’s lawyer Mark Cohen immediately filed an appeal. [Twitter, archive; Doc 198, PDF; Notice of Appeal, PDF; Order; PDF]
Prosecutors filed a superseding indictment against Sam on August 14. The new indictment contains seven of the thirteen original charges, removing anything that wasn’t explicitly in the Bahamas extradition agreement. Sam’s $100 million of political contributions are now listed as just another way he misspent customer money. The government also filed its motions in limine — pretrial motions on what evidence is admissible and so on. [Indictment, PDF; in limine, PDF; Doc 165, PDF]
Mathew Russell Lee of Inner City Press has been the man on the scene at the SDNY courthouse for Sam’s hearings. As well as live-tweeting hearings, he collects his writeups as Kindle books. His collection on Sam is just out, recounting the saga as he saw it happen from December 2022 to last week. [Amazon UK;Amazon US]
SEC appeals Ripple
The SEC has asked SDNY District Judge Analisa Torres to pause their case against Ripple so they can appeal her questionable decision on XRP sales to the 2nd US Circuit Court of Appeals. The SEC’s grounds for appeal is that there’s now a genuine intra-district judicial dispute over the issue. [Doc 887, PDF]
On July 13, Torres ruled that XRP is a security when it’s sold to sophisticated investors, but it’s not a security when sold to retail investors on exchanges – which is precisely backward from the past ninety years of US securities jurisprudence.
In the same courthouse, District Judge Jed Rakoff, who is overseeing the SEC lawsuit against Terraform Labs and its cofounder Do Kwon, flatly rejected Torres’ decision and ruled that Terraform’s LUNA and MIR coins may have been securities when sold to retail investors.
John Reed Stark notes: “For SEC lawyers like myself, Judge Jed Rakoff is arguably considered the most respected and experienced securities law jurist not only in the SDNY but perhaps in the entire U.S. federal court system.” [Twitter, archive]
The SEC proposes to file its opening brief on August 18. Ripple would have until September 1 to respond, and the SEC’s reply would be due a week later on September 8. This is quite soon, but Coinbase and Binance are both using the Ripple decision to support their defenses against their own SEC suits.
Prime Trust goes Chapter 11. You had one job!
Crypto custodian Prime Trust filed for bankruptcy protection in Delaware on August 14. Prime halted withdrawals in late June after Nevada regulators put the company into receivership as insolvent.
How did Prime fall insolvent? They lost the keys to a pile of the crypto they were supposed to be keeping safe. This happened in December 2021. You had one job, guys!
From December 2021 until March 2022, Nevada says that Prime used customer funds to buy additional crypto. But for a year and a half, Prime just lied and told everyone they still had their crypto.
Prime has between 25,000 and 50,000 creditors and liabilities of up to $500 million. The firm’s top fifty creditors have claims of $145 million — including the largest claim of $55 million. [Business Wire; Stretto]
Knives out at TrueUSD
Archblock, formerly TrustLabs trading as TrustToken, created TUSD, a supposedly asset-backed $3 billion stablecoin. It then sold TrueUSD to Justin Sun’s Tron in late 2020 — but the connection to Tron has always been a bit murky, and TrustLabs has never been upfront about who the coin’s actual owner was.
TrustLabs said the new owner was Techteryx, “an Asia-based consortium” — though TrustLabs/Archblock still managed TUSD until July 2023. [Medium, 2020, archive; Twitter, archive]
Alameda Research was the largest redeemer of TUSD. FTX listed TUSD when they knew that TrustLabs was misrepresenting who owned it.
TrueUSD’s main custodian was Prime Trust — and Prime was also its main fiat on-and-off ramp for the US banking system. Prime Trust was thus Justin Sun’s main link to US banking. At least until Signature, Prime’s main banking partner, collapsed in March.
We wrote previously about how the TUSD coin seems pretty clearly unbacked and was being used by someone in the vicinity of Binance to pump the price of bitcoin earlier this year.
Archblock is now doing a merger to move the company’s domicile from the US to Switzerland, for unclear reasons. [Blockhead]
Daniel Jaiyong (“Jai”) An, co-founder of TrustLabs/Archblock, is not happy with this merger and move. An is suing Archblock and its executives: Rafael Cosman, co-founder and board member; Alex De Lorraine, COO and former board member; and Tom Shields, former chairman of the board.
The complaint was filed pro se on July 14 in Delaware, meaning An did not hire an attorney. He wrote the 58-page complaint himself — and it shows. [DLNews; complaint, PDF]
An was in the midst of negotiating the sale of TrueUSD to Techteryx, whose contact was Justin Sun of Tron. In fact, An describes the sale as being to Tron.
So, yes — TrueUSD is run by Justin Sun, if you ever doubted it.
TrustLabs got $32 million from investors in a 2018 accredited investor ICO under SEC Regulation D for a token called TRU. Investors included Andreessen Horowitz, BlockTower Capital, Danhua Capital, Jump Capital,* ZhenFund, Distributed Global, Slow Ventures, GGV Capital, and Stanford-StartX.
*Update: Although An mentions Jump Capital in his complaint, Jump Crypto wrote us to say it wasn’t Jump Capital, but Jump Crypto, a division of Jump Trading Group, who made the investment.
An says that by January 2020, it was clear that the plan in the TRU white paper would never pass SEC muster. He wanted to pay the investors back, as the SEC would surely require – but he says that his cofounder Cosman blocked this. The other shareholders voted An out in July 2020.
TrustLabs finally issued the TRU token in November 2020, repurposed as the native token of their TrueFi lending protocol. An alleges the other executives enriched themselves with TRU tokens — but not him.
An says the company threatened him with legal action if he informed investors what the company was doing. An then filed as a whistleblower with the SEC. He claims the company has retaliated against him for doing so.
Several paragraphs claim past criminal actions by Cosman.
An remains a shareholder in Archblock. He wants the merger blocked and $94.32 million in damages.
Data Finnovation notes that if An’s allegations are true, then FTX knew since 2020 that TrueUSD was owned by Tron — because Tron’s lawyer Can Sun was working on the deal and Can Sun later ended up working for FTX under Daniel Friedberg. Remember that FTX minted nearly all the tethers on Tron in the same time period. [Twitter, archive; Medium, 2022]
Worldcoin wants your eyeballs
Sam Altman is the founder and CEO of OpenAI, the company behind ChatGPT. Worldcoin is Altman’s proof-of-eyeball cryptocurrency.
Altman promotes Worldcoin as a way to end poverty — and not just a way for him to collect huge amounts of biometric data. In exchange for giving up your iris scan, you’ll get 25 free Worldcoins (WLD). [CoinDesk]
Worldcoin operators use “orbs” to scan eyeballs. The operators get paid in tethers. [MIT Technology Review, 2022]
Since the Worldcoin project launched on July 24, throngs of people in Kenya have been queuing up to get their eyeballs scanned — lured by free Worldcoin tokens.
The problem is converting WLD into actual spendable money. The Worldcoin app has no direct withdrawal option — so the Kenyan users have to trade their WLD for USDT on Binance or put their trust in random over-the-counter buyers. So Worldcoin has become a honeypot for scammers: [Rest of World]
“There’s no regulation in the space, and the people receiving the free tokens don’t have enough information. What do you expect?” Evrard Otieno, a Nairobi-based crypto trader and software developer, told Rest of World. “It’s just another opportunity for traders to make some money in the market.”
Days after the Worldcoin launch, the Communications Authority of Kenya and the Office of the Data Protection Commission ordered Worldcoin to suspend operations while they reviewed the project’s privacy protections. [Twitter, archive]
Kenyan police then raided the Worldcoin Nairobi warehouse on August 5 and seized the orbs. [KahawaTungu].
Data watchdogs in Britain, France, and Germany are also investigating Worldcoin for similar reasons. [ICO; Reuters]
The WLD token launched at $3.58 but had crashed to a low of $1.76 by August 14. WLD trades only against USDT and mostly on Binance. [CoinDesk; CoinGecko]
Worldcoin’s investors, who have collectively put in $125 million, include the usual suspects — Andreessen Horowitz, Coinbase Ventures, Digital Currency Group, Sam Bankman-Fried, and Reid Hoffman, the co-founder of LinkedIn. [Crunchbase]
Hex enduction hour
Hex is an ERC-20 token that doesn’t do anything. Hex was promoted widely, even internationally on billboards, by a fellow called Richard Heart (or Richard Schueler to the tax man).
Hex promised stupendous yield rates. You bought Hex with ETH, then you staked the Hex, then you got paid interest in Hex. The website called Hex the “first high-interest blockchain certificate of deposit” that “was built to be the highest appreciating asset that has ever existed in the history of man.”
To “stake” your Hex, you would send it to … the Ethereum genesis address, 0x0. That is, you would throw your Hex into a black hole from which it could never be recovered. The Hex smart contract would then pay you Hex tokens in the future, apparently.
The SEC has finally sued Heart over Hex, PulseChain (a fork of Ethereum), and PulseX (a fork of UniSwap). They allege that Heart raised over $1 billion from these three unregistered securities offerings beginning in 2019. [SEC press release; Complaint, PDF]
The SEC says that Heart misappropriated investor funds to buy luxury sports cars, Rolex watches, and a 555-carat diamond, known as “The Enigma,” which he purchased in February 2022 in a Sotheby’s auction. Sotheby’s accepted ETH for the purchase. Heart was famous for promoting Hex with photos of himself showing off his wealth.
Heart has an unfortunate past of selling email spam software in the 2000s. He even called himself the Spam King. Bennett Haselton of peacefire.org successfully sued Heart in 2002 under Washington anti-spam laws for sending junk emails with deceptive headers. [ZDNet, 2002, archive; Panama Guide, 2007, archive]
David went on Richard Heart’s livestream in early 2020. David talked about books a bit, then Richard went into his sales pitch for Hex. Richard is a very charming and likable fellow, but in that particular way that cautions you not to let a penny of your cash within a mile of him. [YouTube, 2020]
This bank failure is fine, nothing to see here
A fourth US bank fell over this year — Heartland Tri-State Bank of Elkhart in Kansas, a small bank with just $139 million in assets. David Herndon, the Kansas banking commissioner, closed Heartland on July 28 after it became insolvent because it was “apparently the victim of a huge scam.”
Herndon said he didn’t know what the scam was — but he said other banks in the state were not affected. Our psychic powers tell us he has an extremely good idea what happened. The FBI is on the case.
The FDIC had to pay $54 million out of its deposit insurance fund – more than Heartland’s entire $48 million loan portfolio. [FT, free with login]
An employee of the bank said all workers at the bank are still employed, but Shan Hanes, the president and CEO, is no longer there. The bank was handed over to Dream First Bank as a growing concern.
Everyone has been careful to note that the bank fell due to a “huge scam” and definitely not the sort of thing that took out Silvergate Bank, Silicon Valley Bank, and Signature Bank. The “scam” was first mentioned in an August 4 story in American Banker. [Kansas Reflector; FDIC; American Banker]
Still only good news for bitcoin
The SEC is suing Binance. BAM (Binance US) wants to block further discovery and depositions, because they’ve given the SEC so much information toward the consent order they had to be beaten into. BAM demands only four depositions of BAM employees, no depositions of BAM’s CEO or CFO, and no matters outside the consent order. We suspect that Binance doesn’t have some of the perfectly reasonable stuff the SEC has asked for, such as non-existent financial accounts — so Binance is resorting to the Tether defense. John Reed Stark thinks the SEC will largely prevail. [Doc 95, PDF; Twitter, archive]
The SEC sued Bittrex in April for listing securities without registering as an exchange. Bittrex has now settled with the SEC. They will pay $14.4 million disgorgement, $4 million prejudgment interest, and a $5.6 million civil penalty. [Press release]
CoinDesk is laying off 20 people from editorial — 45% of the editorial staff, or 16% of all staff – to prepare for its sale to the Peter Vessenes and Matt Roszak consortium. We’re pretty sure everyone at CoinDesk is furiously updating their resumes right now. [The Block; TechCrunch]
Wyoming Senator Cynthia Lummis, several lobbyists and academics, and venture capital firms a16z and Paradigm have filed amicus briefs urging the SEC to drop its lawsuit against Coinbase. These mostly repeat Coinbase’s arguments. [Doc 48, PDF; Doc 50, PDF; Doc 53, PDF; Doc 55, PDF; Doc 59, PDF; Doc 60, PDF; Doc 62, PDF]
Kai Lentit of “Programmers Are Also Human” on YouTube goes to Web3 Berlin. “Where people without jobs ask people without companies for jobs.” [YouTube]
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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)
Axie Bailed out by fraudulent Tether exchange. If you’re holding crypto on binance, you’re bailing out Axie.
It costs them nothing to bail out bad projects, and they can just make money by pumping and dumping the tokens. pic.twitter.com/0cqVSdEz4Q
— Bitfinex’ed 🔥 Κασσάνδρα 🏺🇺🇦 (@Bitfinexed) April 6, 2022
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.
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.
GBTC selling at a 25% discount to NAV. Miners sitting on substantial Bitcoin. Mt. Gox settlement hitting the market soon. No spot Bitcoin ETF approved.
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)
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)
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.
Amy Castor 