No Bailout for SBF – Bankless

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Dear Bankless nation,

This week, justice came for SBF who was arrested by police in The Bahamas and is facing extradition after a laundry list of charges were filed by U.S. authorities.

It’s about time. Crypto supporters were skeptical Sam would get his comeuppance due to his political connections, but it appears the government is ready to throw the book at the FTX founder.

What charges, if any, await his FTX co-conspirators might be a different story.

Read along for more details, and other news highlights from the week.

– Bankless team

p.s. Premium Subscribers can listen to our interview with Vitalik on the future of Ethereum in Early Access now.

Here’s a recap of the biggest crypto news from this past week.

The U.S. is filing formal criminal charges of wire fraud and securities conspiracy against Sam this week, so the Bahamas Police Force arrested Sam this Tuesday in anticipation of a formal extradition request.

Here’s the footage of police escorting a suited-up Sam.

Sam has been denied bail as the “risk of flight is so great… [and Sam] ought to be remanded in custody”, said Bahamian chief magistrate Joyann Ferguson-Pratt.

The Commodity Futures Trading Commission (CFTC) is also charging Sam, FTX and Alameda on eight separate charges including wire fraud, commodities fraud, money laundering and campaign finance violation. A choice quote:

At Bankman-Fried’s direction, FTX executives created features in the underlying code for FTX that allowed Alameda to maintain an essentially unlimited line of credit on FTX. FTX Trading executives also created other exceptions to FTX’s standard processes that allowed Alameda to have an unfair advantage when transacting on the platform, including quicker execution times and an exemption from the platform’s distinctive auto-liquidation risk management process…

Alameda used FTX funds, including customer funds, to trade on other digital asset exchanges and to fund a variety of high-risk digital asset industry investments… also took hundreds of millions of dollars in poorly-documented “loans” from Alameda that they used to purchase luxury real estate and property, make political donations, and for other unauthorized uses.

In a hearing with FTX CEO John Ray, Congressman Tom Emmer beseeches the public to understand the FTX debacle as fundamentally a “failure of centralization and business ethics” that decentralized, immutable blockchain technology seeks to solve. He also comes with some tough questions around the relationship between FTX and the SEC:

On the other side of the coin, Kevin O’Leary of Shark Tank fame is arguing in a formal testimony that FTX’s failure stemmed from Binance “intentionally” putting it out of business. Make of this what you will.

While crypto tries to mentally move past the FTX blow-up, people have been putting a more skeptical eye on another massive central exchange.

Binance saw a significant outflow of ~$5-6B in funds earlier this week. What’s the reasoning this time around?

Binance released a half-baked 5-page “proof-of-reserves” audit from auditing firm Mazars earlier this week that set off Crypto Twitter’s bullshit meter. The “audit” excluded all other cryptoassets and looked only at Binance’s Bitcoin assets and liabilities. Even Mazars themselves issued strong disclaimers around the methodology of the audit in the report:

This AUP (Agreed-Upon Procedures) engagement is not an assurance engagement. Accordingly, we (Mazars) do not express an opinion or an assurance conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported.

As of Friday, Mazars has reportedly stopped all work with crypto companies for proof-of-reserves.

But even though the words “bank run” are being thrown around a lot, Binance’s solvency situation may be less grim than you think. Binance’s proof-of-reserves as captured on a Nansen dashboard 24 hours ago still showcases a war-chest of $57B, down from $70B a month ago.

More on this on our Monday newsletter next week.

Finally, the U.S. Justice Department is also reportedly closing in on charging Binance for “possible money laundering and criminal sanctions violations” as part of a multiyear-long investigation since 2018, according to Reuters.

A class-action lawsuit is being launched against Yuga Labs.

The charge? Celebrities that were scooping up Bored Apes in the past year didn’t really buy it on their own accord, but were secretly paid by Yuga as part of an orchestrated scheme through the crypto payment firm MoonPay to inflate its price, create ApeCoins “out of thin air” and “mislead” retail buyers into buying “losing investments at drastically inflated prices.”

The Bored Apes floor price is down ~56% to 69 ETH from an all-time-high of 158 ETH in April 2022.

Some of the celebrities in the lawsuit include Jimmy Fallon, Justin Bieber, Madonna, Paris Hilton, Kevin Hart, Snoop Dogg, Post Malone and more.

Elsewhere, the 45th President of the United States of America Donald J. Trump is dropping his own NFT collection on Polygon. All for the price of $99 per card.

The collection has a larger than ordinary supply of 45,000 images of Trump wielding boxing gloves, cowboy hats, rugby balls, semi automatic rifles… you get the idea. And — of course — the collection sold out in hours.

Elizabeth Warren is trying to introduce a bill – Digital Asset Anti-Money Laundering Act – that would effectively create AML/KYC rules around wallet providers, block validators/miners, MEV searchers and more. Jake Chervinsky seems to think the bill is more of a political stunt than anything, so there’s that.

ConsenSys is announcing a huge collaboration with PayPal this week that lets retail buy crypto directly via MetaMask.

If you’re thinking that this isn’t decentralized at all – you’d be right. PayPal still controls who has access to its payment rails, so it’s not a DeFi product.

The second way to look at this is: it’s still an improvement on the status quo. With everything that’s been going on around crypto this past year, centralized exchanges have been increasingly treated as a vehicle merely meant for on and off-ramping from TradFi into the trustless rails of DeFi.

In that CeDeFi layer of the crypto world, more competition in centralized onramping is a huge plus, particularly for one of the largest and efficient payment processors of the world. And what better way but to ramp directly onto crypto’s biggest non-custodial wallet?

More on crypto on/off-ramps in one of next week’s newsletters. 👀

Here’s what we have lined up next week.

  1. William Peaster is dropping a guide on how to onramp into crypto without a CEX

  2. Ben and Jack are each spotlighting the liquid staking and RWA ecosystems

  3. It’s Vitalik on the podcast!

👉 Explore the FuelVM and discover its superior developer experience!

  1. 📘 Where Crypto is Still Growing

  2. 📘 Is Web3 Bad for the World?

  3. 📘 5 DeFi Metrics Surging Post-FTX

  4. 📘 The Biggest Crypto Moments of 2022

  1. 📺 This is How Crypto Fixes the Internet with Antonio Garcia Martinez

  1. 📘 PartyBid evolved 🥳

  2. 📘 2022 NFT highlights 🗓️

  3. 📘 NFT predictions for 2023 🔮

  1. 📘 UNICEF x Gitcoin Collab to Revolutionize Philanthropy

  2. 📘 AI Art is a remix

  3. 📘 Consolidating Governance with DAOstewards

  1. 📺 Decentralized Identity with Gregory Rocco

  2. 📺 Digital Identity is Not Human Identity with Philip Sheldrake

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Modular blockchains are the future. L2s alone won’t solve the scaling problem; for this, we need to move toward a modular architecture. Fuel is the fastest execution layer for the modular blockchain stack, enabling maximum security and the highest flexible throughput.

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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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