Insider Trading at OpenSea?

The biggest crypto news and ideas of the day

Sept. 15, 2021

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Today's must-reads

Top Shelf

INSIDER ALLEGATIONS: OpenSea said it uncovered evidence of insider trading on its NFT marketplace and is implementing new policies to prevent future occurrences. Last night, Twitter user ZuwuTV published receipts showing what appears to be an alternative account belonging to OpenSea's head of product Nate Chastain investing in non-fungible tokens just before they were featured on OpenSea's front page, and then cashing out on the consequent price increase.

SAVING SOLANA: Solana, a high-speed layer 1 blockchain that's in beta testing, came back online early Wednesday following a marathon session of fits and starts by engineers racing to restore service. The 20-hour outage began Tuesday after "resource exhaustion" on the network halted blockchain validation. On-chain activity froze across Solana's multibillion-dollar ecosystem of trading, staking and lending projects.

BTC ETF: Fidelity Investments privately prodded the U.S. Securities and Exchange Commission last week to approve its bitcoin ETF, according to recent filings, citing increased investor interest in crypto and similar funds worldwide. Fidelity Digital Assets President Tom Jessop, among other executives from the firm, met with SEC officials on a Sept. 8 video call. There are 10 bitcoin ETF applications pending approval in the U.S.

JUNK BONDS? Crypto exchange Coinbase has sold $2 billion worth of debt via junk bonds, up from an initial target of $1.5 billion, due to strong market interest. The move highlights crypto's evolution from a fringe asset class to one under the spotlight by mainstream financial types.

HASH POWER: Greenidge Generation Holdings will buy 10,000 Bitmain miners for its planned new facility in Spartanburg, S.C. The upstate New York-based mining firm's not-yet-active Southern facility plans to source two-thirds of its electricity planned to come from zero-carbon sources such as nuclear power. Today also marks Greenidge's listing on Nasdaq, following a merger with IT support provider Support.com.

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Overheard on CoinDesk TV...

Sound Bites

"You can't go from a world of fiat to decentralized and anonymous instantaneously."

–LMax Group CEO David Mercer, on CoinDesk's "First Mover" live at Salt.

What others are writing...

Off-Chain Signals

Ethereum Layer-2 Chain Arbitrum Suffers Near Hour-Long Outage (Brady Dale/The Defiant)
Crypto wealth manager Abra bags $55 million Series C raise (Ryan Weeks/The Block)
Canaan nets record bitcoin miner sales with $167 million in Q2 (Wolfie Zhao/The Block)
Far-Right Conspiracist Receives $60,000 in Bitcoin to Fund Legal Case (Scott Chipolina/Decrypt)
Hedge funds riding crypto wave post bumper returns (Eva Szalay/Financial Times)
A bit adjacent, but INPUT brings you Paradise lost: The rise and ruin of Couchsurfing.com (Andrew Fedorov)

A message from Aimedis

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Putting the news in perspective

The Takeaway

Gensler Doesn't Believe in Safe Harbors
SEC Chairman Gary Gensler yesterday delivered lengthy testimony before the Senate Banking, Housing and Urban Affairs Committee, covering a variety of topics including the agency's plans for more structured regulation of cryptocurrency. With many in the industry decrying what has often appeared to be a scattershot and improvised approach to crypto regulation, Gensler told the committee that his SEC staff is hard at work drafting new, clearer rules for the industry.

Gensler made one particularly notable comment, saying that the publicly traded crypto exchange Coinbase is offering "dozens of tokens that might be securities" without being properly registered to do so.

That is understandably frustrating for Coinbase and industry observers more broadly, given that the SEC took a relatively hands-off approach during the 2017 boom in so-called "initial coin offerings" that birthed many of the assets traded on Coinbase. More broadly, Coinbase and others have argued that the SEC has refused to offer sufficient regulatory clarity on crypto.

In historical terms, that hasn't been entirely negative. To a degree, the past few years have amounted to an unspoken "safe harbor" period in which the SEC and others didn't pre-emptively shut down ICO projects or other crypto innovations, instead carefully picking the most obviously fraudulent targets for later prosecution. It's increasingly clear that Gensler's SEC will break with that approach, as seen with the recent warnings to Coinbase about a proposed lending product.

But why, in retrospect, was the SEC so hands-off for so long? An intriguing perspective was floated after Gensler's testimony by Bennett Tomlin, an independent financial analyst and co-host of the "Crypto Critics Corner" podcast. "I have an intuitive sense that many ICO promoters benefited from the Trump Administration running the SEC," Tomlin tweeted.

On the one hand, that could apply to any Republican administration, given the party's ideological bent for less government oversight and more individual responsibility. But there were also worrying elements specific to the Trump administration.

One example is the tie between former Trump adviser Steve Bannon and Brock Pierce, a major player in a variety of crypto projects that in retrospect appear increasingly questionable. Bannon and Pierce worked together starting in the mid-2000s, when both were pioneers in the sale of digital assets for video games. Gaming eventually led Pierce into crypto, as it did many others, and he became a co-founder of crypto entity Block.One. Block.One organized and ran what purportedly became the biggest ICO of all time, raising a supposed $4.4 billion for a supposed Ethereum competitor called EOS.

That sale has since been alleged to be substantially fraudulent. Block.One paid a $24 million fine in 2019 for sale of an unregistered security, but at the time that fine was viewed by many as a laughable slap on the wrist given the amount raised. And apparently much more severe misbehavior by EOS and Block.One has not yet been pursued by regulators: Researchers recently found that as much as $800 million of the supposed total raised was the result of "recycling" donated ether into supposedly new donations.

This manipulation of the numbers likely helped bait more real investors into giving money to Block.One. But just three years later, EOS has largely failed to live up to either its technical or financial promise, and currently has a market cap of only $4.7 billion, likely representing huge losses or opportunity costs for many EOS backers. Dan Larimer, the technical head of the project who was for a time held up as a Vitalik-like genius, has largely disappeared from the crypto scene. That means an awful lot of early crypto investment has more or less evaporated, instead of helping push the technology or ecosystem forward.

This is not to allege any outright collusion between Trump's SEC and crypto fundraisers. But it should be kept in mind amid the uproar over what seems likely to become more aggressive regulation under Gensler. While it might uncharitably be viewed as a crackdown, it's also worth considering that the Trump SEC was to a degree asleep at the wheel, and that the real clarity Gensler is promising could be a net benefit to the industry if it's done right.

–David Z. Morris

Sponsored Content

X World Games: NFTs as an Asset Class

One asset class that is causing excitement is non-fungible tokens (NFT). These digital assets are immutable and exchangeable, offering a store of value and potentially a source of revenue. Creators around the world are flocking to platforms to stake their claims in this new ecosystem.

One such up-and-coming platform is X World Games (XWG), a decentralized gaming ecosystem built on the Binance Smart Chain and Ethereum. Players and creators can obtain X World Games (XWG) tokens through a variety of innovative games. The first game launched on the platform is Dream Card, which offers digital, collectible and customizable characters and NFTs that can be traded with XWG tokens.