Fantom, OpenSea, CFTC and More - Crypto News Briefs

Fantom Hack

An employee of the Fantom Foundation lost at least $7 million worth of crypto assets in an exploit on Wednesday, October 18, 2023, according to on-chain data and comments from Fantom Director Andre Cronje. Cronje said a Fantom employee's personal funds were targeted and stolen in a Chrome browser zero-day exploit. A wallet receiving the stolen assets contained 4,500 ETH, worth around $7 million. While the significant majority of Fantom Foundation funds remain secure, around $550,000 of foundation funds were affected according to a later statement. The attack is under active investigation.

Unibot Hack

Unibot was hit by a hacker exploit on October 31 that compromised a newly deployed router contract, enabling unauthorized withdrawals totaling around $560,000 from approximately 600 user wallets. Unibot took swift action by suspending the exploited contract to contain the issue and revoking token approvals to prevent further losses. To fully compensate affected users, Unibot spent $1.78 million which included reacquiring 86% of tokens at market value and providing full refunds in ETH for tokens that had plunged in value. Going forward, Unibot announced 10 days of zero fees, increased future revenue sharing with token holders, and engaging auditors to bolster security, as concrete steps to rebuild user trust and optimism after the token's value declined over 40% following the incident.

Polkadot

Parity Technologies, the company behind the Polkadot blockchain, recently laid off most of its 385 employees just before its annual retreat in Mallorca. Employees felt blindsided, as Parity had been on an aggressive hiring spree despite Polkadot lagging behind competitors. They blamed excessive executive pay and poor financial management for the cash crunch leading to layoffs. The awkwardly timed layoffs left employees confused about Parity's future direction. At the retreat, the dissolution of the company and future of Polkadot was discussed instead of original plans. Employees were angry that founder Gavin Wood was absent from both the layoff announcement and the retreat itself. The layoffs have sparked worries about talent flight and lack of leadership for Polkadot's development.

OpenSea

NFT marketplace OpenSea is laying off approximately 50% of its staff as part of a major strategic shift dubbed "OpenSea 2.0" that will focus on rebuilding and upgrading the company's products and technology. CEO Devin Finzer acknowledged feedback that OpenSea has fallen behind competitors and stated the company aims to move with greater "speed, quality and conviction" going forward. The layoffs are intended to create a smaller, more nimble team directly connected to users as OpenSea tests new products publicly. Finzer expressed gratitude to departing employees and said the company will continue supporting existing products during this transition.

Qredo

Crypto custody infrastructure provider Qredo, backed by Coinbase Ventures and others, is facing financial struggles with only 6 months of runway left after cutting 50% of staff for the second time amid declining transaction volumes. Valued at $460 million last year, Qredo raised $80 million in Series A funding in 2022 but it's unclear how the capital was utilized as the crypto winter continues. The company is now seeking new funding and exploring M&A options to stay afloat while its QRDO token has dropped nearly 100% from its peak.

Reddit

Reddit has decided to discontinue its blockchain-based Community Points system by November 8, 2023 due to regulatory concerns and inability to scale the feature broadly. Launched in 2020, Community Points rewarded users with crypto tokens for engagement, aiming to strengthen communities. However, the move caused related tokens like MOON to crash, prompting backlash including from Kraken's Jesse Powell who argued Reddit should offer redemption rather than simply destroying value. Investigation suggests some moderators may have sold off significant quantities of MOON right before the public announcement, despite claims they only had 1 hour notice. Reddit maintains Points had no intended monetary value and trading them violated terms. The shutdown allows Reddit to refocus investments on products benefiting more users.

CFTC

According to Commodity Futures Trading Commission Commissioner Christy Goldsmith Romero, whistleblower tips to the agency hit a record high this year, with the majority involving cryptocurrency. The tips led to $16 million in whistleblower awards and helped the CFTC bring enforcement actions related to crypto fraud and other violations. Romero emphasized the vital role whistleblowers play in detecting fraud early and saving Commission resources. She praised the CFTC's Whistleblower Program for providing incentives and protections for whistleblowers, enabling the agency to better protect customers and markets.

Safemoon

Two executives from the decentralized finance company SafeMoon, Braden John Karony and Thomas Smith, were arrested on charges of securities fraud, wire fraud, and money laundering conspiracy after prosecutors said they lied to investors about locking liquidity and instead used funds to purchase luxury items. A third executive, Kyle Nagy, remains at large. The arrests came as part of a joint enforcement action by the U.S. Attorney's Office and the Securities and Exchange Commission, which also brought civil charges against the trio for alleged fraud and offering unregistered securities by failing to deliver promised profits to investors and misappropriating funds. The SEC called SafeMoon tokens securities because purchasers invested money and expected profits from the efforts of the executives.

Binance – Russia

Binance, the world's largest cryptocurrency exchange, is ending its partnership with payments provider Advcash that enabled funds to flow between sanctioned Russian banks and Binance, according to the Wall Street Journal. This move aligns with Binance's recent announcement that it intends to fully exit Russia amid legal scrutiny over whether it helped Russia evade sanctions. Meanwhile, the US Treasury sanctioned Russian national Ekaterina Zhdanova for using cryptocurrency to launder and move money for Russian elites in order to offset the impact of international sanctions on Russia following its invasion of Ukraine. Zhdanova's case highlights the ongoing concerns that cryptocurrency could be used to circumvent sanctions imposed on Russia.

Paypal

PayPal is facing increased regulatory scrutiny of its cryptocurrency offerings on both sides of the Atlantic. In the US, PayPal received a subpoena from the Securities and Exchange Commission related to its PYUSD stablecoin issued in partnership with Paxos. The SEC requested documents as it determines potential next steps, after having previously accused Paxos-issued stablecoin BUSD of being an unregistered security. Adoption of PYUSD has been slow since its launch. Meanwhile in the UK, PayPal registered with the Financial Conduct Authority for crypto services but faces major restrictions including being barred from onboarding new crypto customers, expanding services, and offering key crypto functionality like peer-to-peer transactions, staking, DeFi activities, and fiat on-ramps. PayPal had already paused UK users' ability to purchase crypto since 2022 due to regulatory constraints. The regulatory attention highlights concerns around consumer protections and whether stablecoins like PYUSD should be considered unregistered securities. PayPal faces an uphill battle to expand its crypto business amid this heightened scrutiny.

Commentary

Although prices have trended higher recently, cryptocurrency markets still face challenges. Our view on the future is optimistic, but we believe the next year will continue to be difficult as companies struggle amid the aftermath of the previous bull market's excess. The technology requires further maturation given the persistent hacking issues. To survive, companies must become more efficient and develop better business models. After the creation of countless largely fraudulent or useless tokens, investors and regulators are gaining wisdom. We doubt the irrational exuberance of 2021 will repeat itself. We believe a healthier, more sustainable bull market from 2023-2025 will propel crypto adoption to new levels. However, reorganization is necessary to get there. The companies mentioned above aren't alone in downsizing now, as many others like YugaLabs, Chia and Ledger are, due to their expenses remaining high while the market environment will be very slow to improve. Overall, the market will trend toward greater efficiency as talent leaves ineffective projects and contributes elsewhere. Time is still needed to process the pre-2023 chaos and establish proper safeguards through regulation and court cases. Regulators like the SEC and CFTC have significant work remaining, but the US will likely strike an appropriate balance between inaction and overreach. Shutting down scammers like the Safemoon founders is crucial, but targeting legitimate companies like Paypal is unproductive.