Issue 1 – Sub-primate lending
Ape-induced cascading liquidations, a questionable 'hack', and an upcoming crypto conference
Welcome to the first ever edition of Whitespace, a newsletter that will keep you up to speed on what I’m working on, recent events in crypto and web3, and the various other things rattling around in my brain. If you haven’t seen it yet, I’ve gone into more detail on what I’m hoping to achieve in Issue 0.
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Now, without further ado:
September 5 and 6: I’ll be speaking at the Crypto Policy Symposium. The event will be in-person in London or virtual, and registration is still open! I’ll be participating virtually in the “Crypotopia - land of the promised vs. virtual” discussion alongside Oscar Salguero and David Gerard, moderated by Bloomberg’s Emily Nicolle.
In the news
NBC News: “Crypto skeptics have been debating online for years. Now they’re organizing.”
David Ingram writes about the crypto policy conference mentioned above. “The (Edited) Latecomer’s Guide to Crypto” gets a shoutout, too. The crypto skeptic furniture situation seems to be worsening—Liron doesn’t even get a chair.
FastCompany: “Molly White tried to tell you Web3 was not going great before the crypto crash”
FastCompany has decided that I am one of the 2022 Most Creative People in Business, which is both extremely flattering and also makes me question what the qualifications are for someone to wind up in that category, given that I am perhaps one of the most out of business people these days.
The crypto section
Bankruptcy proceedings against Celsius and Voyager have continued, and government officials have requested an independent examiner be appointed to dig into the details of Celsius’ finances. Letters are still flowing in to the judges in both the Voyager and Celsius cases, with often heartbreaking pleas from customers hoping to get back some of the money that’s currently locked in the platforms.
We’re also continuing to see ripple effects from the OFAC sanction of Tornado Cash. The DAO responsible for the project shut down, stating that the project “can’t fight the U.S.” Several projects blocked access to Tornado Cash, or blocked wallets that had interacted with the project, causing some chaos on the Aave protocol in particular. The largest Ethereum miner, Ethermine, stopped including Tornado Cash transactions in their blocks. Ethermine is responsible for more than 27% of Ethereum mining.
Do Kwon did a rare interview since the May collapse of his Terra project, a devastating event in the crypto world that has had considerable impact throughout the ecosystem. Viewers were fairly universally disappointed with it, with many criticizing interviewer Zack Guzmán for seeming to go soft on Kwon, and for appearing uncaring when discussing the suicides of some people who were financially invested in Terra. Guzmán, for his part, responded with a long Twitter thread arguing that, actually, crypto reporters should have conflicts of interest with their subjects. Crypto reporters continue to impress me every day.
It was a busy week, with 30 new posts on Web3 is Going Just Great between August 12 and 20.
Martin Shkreli argues he’s not a thief, he’s just really incompetent
Martin Shkreli, a man who has spent the last decade or so on an apparent quest to become as unlikeable as possible, either pump-and-dumped his own token or displayed stunning levels of incompetence.
On August 12, Martin Shkreli’s crypto wallet suddenly dumped its “Martin Shkreli Inu” token holdings (really, that’s the name). He says the token is somehow “powering” his new definitely-not-a-pharmaceutical-company (because he’s banned from the industry) Druglike, which aims to create software for developing… new pharmaceuticals. The tokens were then resold for over $450,000 worth of ETH.
Now, it could be that the man just out of prison for securities fraud and with a long history of shady behavior just ripped off a bunch of people who decided to try giving him a second chance.
Or, you could believe his side of the story, which is that he decided to use the same computer where he was logged in to his hot wallet and holding nearly half a million dollars in crypto to torrent a porn file called—no joke—
[BigTitsRoundAsses] 17.12.14 - Jazmyn [1080p], which ended up installing a remote access trojan on his computer and stealing all his crypto.
Who’s to say!
Sub-primate lending: “All my apes repo’ed”
Because we truly live in the worst timeline, a service called BendDAO managed to introduce risk of ape-induced cascading liquidations when they decided it would be a good idea to allow people to borrow cryptocurrency against their Bored Ape NFTs. As Bored Apes (and NFTs in general) have stopped attracting such top-dollar prices, 15% of the ape-backed loans on the platform are at serious risk of being liquidated and sold at auction. Not only that, but it is likely that any liquidations would push down the floor price of the collection, causing even more loans to be forcibly liquidated. Bored Ape NFTs valued at a total of $5.3 million are in this risk category, including one owned by a co-founder of BendDAO.
More ape escapes
It’s hard enough believing that people have assigned value to a token called “ApeCoin”, but a crafty scammer managed to convince a guy to give them his Bored Ape NFT for a pile of fake ApeCoin. The trader admitted he didn’t bother double checking the contract, and now he’s out the ~$160,000 he hoped to get for his monkey picture. [Link]
Congratulations to the apparent new record holder in the “shortest time between ape purchase and scam” category. Less than two hours after transferring a hefty 70.69 ETH ($116,000), a trader had their ape stolen by a scammer who quickly flipped it for 61.6969 ETH (~$101,000) before laundering the money through RenBridge. It may be tough to beat this incredible time, but I do trust the ape collecting community can rise to the occasion. [Link]
Another bad week for crypto companies
The Brazilian crypto lender BlueBenx claimed they were hacked for $32 million. Providing little details about this alleged hack, they decided the best course of action would be to shut off customer withdrawals and lay off all their employees. Bye, I guess! [Link]
Singaporean crypto lender Hodlnaut formally applied for protection from creditors—a Singaporean process similar to Chapter 11 bankruptcy in the US—about a week after closing customer withdrawals. Hodl nought, indeed. [Link] Then, a filing in their case revealed that they apparently lied about not having any exposure to Terra back in May. According to the filing, they actually suffered a $189.7 million loss on UST holdings that they liquidated for 42 cents on the dollar. [Link]
U.S. crypto broker Genesis performed a 20% layoff (around 50 employees) and gave their CEO the boot after losing several hundred million dollars earlier this summer when Three Arrows Capital failed to meet a margin call. [Link]
Singaporean exchange Crypto.com laid off hundreds of employees—possibly more than 1,000 if an anonymous Glassdoor review left by an employee is to be believed—far more than the 5% layoffs they announced in June. Their CEO tried to discourage employees from leaking the news of the layoffs, which backfired when an employee talking to The Verge said, “[it felt like] I got told to shut up and get back to work. It felt insulting.” [Link]
Australian exchange Swyftx cut 74 employees, who made up 21% of their staff. One of them was on her honeymoon in Hawaii when she got the news. [Link]
FDIC vs. FTX
The Voyager bankruptcy, and the ensuing attention on the fact that the company had been falsely advertising part of its service as FDIC-insured, seems to have woken up the FDIC a little bit. Most people are familiar with FDIC insurance as the protection of up to $250,000 per account with a federally-regulated bank, but some crypto companies have been doing gymnastics to imply—or lie—that they are also protected by it.
On July 28, the FDIC sent a cease and desist letter to Voyager regarding their misrepresentations in a bit of a shut-the-barn-doors-after-the-horse-has-bolted moment given that it came three weeks after Voyager filed for bankruptcy. However, they have hinted that further action may be taken related to Voyager.
The FDIC now seems to be scrutinizing other exchanges that are still operational—namely the US branch of Sam Bankman-Fried’s FTX. The FDIC sent a letter to FTX and to several websites that they allege have “made false and misleading statements, directly or by implication, concerning FTX US’s deposit insurance status”.
Suspected Tornado Cash developer arrested in the Netherlands [Link]
India freezes assets of FlipVolt, Vauld’s Indian exchange [Link]
Researchers estimate that an insider trader profited from 10–25% of new crypto listings at Coinbase [Link]
Team member admits to taking more than $400,000 from Velodrome to try to recoup personal losses [Link]
Misconfiguration in the Acala stablecoin project allows attacker to steal 1.2 billion aUSD [Link
Collector loses four Bored Apes valued at over $500,000 to phishing attack [Link]
Eqonex closes its crypto exchange [Link]
BitGo plans to seek damages from Galaxy Digital after they called off their $1.2 billion acquisition [Link]
Claims of racist imagery in Bored Ape Yacht Club NFT project make it to court [Link]
SEC files complaint against Dragonchain in relation to their 2017 ICO [Link]
Canadian pension manager says they invested “too soon” in the crypto sector after $150 million loss [Link]
Celer Network’s cBridge suffers DNS hijacking attack, users lose combined $240,000 [Link]
HUSD stablecoin depegs [Link]
Adam Neumann continues to fail upwards as VCs throw even more money at the ex-WeWork CEO [Link]
South Korea moves to block sixteen unregistered crypto exchanges [Link]
Experienced crypto trader suffers $470,000 theft after signing malicious message [Link]
Bribe Protocol team disappears after raising $5.5 million [Link]
DegenTown NFT project rug pulls after promotion from Magic Eden [Link]
After choosing to keep the crypto, divorcee wants a do-over [Link]
Week in review
I spent a lot of time this week planning and setting up the newsletter and the Patreon, which was a bit of an adventure. I’m really hoping the Patreon/Mailchimp/my website setup I’ve duct-taped together works as I intend, and please do reach out if anything seems weird.
For that matter, I’d love feedback on both the Patreon and the newsletter—suggestions, criticism, what you think I should do differently. Feel free to email me, reach out on Twitter, send me a message via Patreon, or avail yourself of any of the other myriad ways to get in touch.
I also finally remembered to publish a statement I gave on July 27 to the Financial Stability Oversight Council, who were seeking input on the risks posed by digital assets to financial stability.
I also got a fresh install of Windows on my PC, in no small part because I’m really excited to play a new game called Bear and Breakfast. I’ve yet to find the time to load it up, but it looks cute as hell. I also baked some zucchini bread to help mitigate the ongoing zucchini explosion in the garden, and some oatmeal chocolate chip cookies just because.
I attended a few sessions of Wikimania, the annual Wikimedia conference. There were a lot of technical issues, which was a bummer, and the time zones didn’t always work out so well for me, but it was great to see some familiar faces and nerd out about Wikipedia a little bit. The inimitable Annie Rauwerda of depths of wikipedia fame gave a short and very enjoyable talk about some of her favorite Wikipedia rabbitholes, which I enjoyed quite a lot.
Worth a read
Daily Dot, “Court filing in Bored Apes lawsuit revives claims founders built NFT empire on Nazi ideology”
One of the best summaries available of the allegations of racist dogwhistles in the Bored Ape NFT project
NPR, “What is ‘quiet quitting,’ and how it may be a misnomer for setting boundaries at work”
Ed Zitron talked some sense around that ridiculous idea of “quiet quitting” that’s been making the rounds lately
Frances Coppola, “Why Coinbase’s balance sheet has massively inflated”
I continue to be grateful that Frances Coppola is willing to interpret these balance sheets for the rest of us.
David Gerard, “Proof-of-Stake is better than Proof-of-Work — but Ethereum’s Merge won’t fix any other problem with cryptocurrency”
If you’re hearing about “The Merge”, David Gerard breaks it down and explains why it’s not a panacea.
That’s all for now folks. Until next time,
This newsletter originally made references to Patreon, because I started Whitespace as a Patreon before moving to Substack in October/November. I’ve retained the references to Patreon in the newsletter body because it was confusing, but I updated the intro to refer to Substack.