December 22, 2022

The biggest crypto news and ideas of the day

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Welcome to The Node. This is Daniel Kuhn and Xinyi Luo, here to take you through the latest in crypto news and why it matters. In today's newsletter:

In the news: Alameda's Caroline Ellison and FTX's Gary Wang pleaded guilty to DOJ fraud charges, FTX paid mostly in FTT for BlockFolio and British Columbia imposed an 18-month moratorium on new crypto mining operations.
The takeaway: ConsenSys lawyer Bill Hughes writes crypto needs to find ways to protect users, before regulators do.

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Compatriots Cooperate

Bankrupt crypto exchange FTX ex-CEO Sam Bankman-Fried was extradited to the U.S. yesterday as news that his two former close allies, Gary Wang and Caroline Ellison, have been cooperating with federal investigators and have pleaded guilty to yet-to-be named "fraud" charges. In the complaint, the U.S. Securities and Exchange Commission referred to FTX's exchange token FTT as a "security," which Ellison reportedly manipulated. Relatedly, new details show FTX paid almost entirely in FTT for its majority stake in trading platform Blockfolio in 2020. Finally, the FTX creditors committee has decided on a lawyer.

Delisting, Depegging

Paxful removed ETH from its peer-to-peer crypto marketplace. CEO Ray Youssef said the crypto is "controlled by a small number of people" and has become a digital form of fiat since Ethereum's switch to proof-of-stake. Meanwhile, the founder of the Waves blockchain has asked crypto exchanges to deactivate futures markets tied to the WAVES token, which has plunged by 40% over the past two weeks. The volatility is reportedly tied to a WAVES-collateralized algorithmic stablecoin called USDN that has depegged from the U.S. dollar (though it wouldn't be the first time that happened).

Mining Freeze

British Columbia has imposed an 18-month moratorium on new crypto mining operations, becoming the third Canadian province to limit the industry's growth. Elsewhere, bitcoin miners operating in northern Norway and Sweden, many of which left southern Europe this year to avoid surging electricity prices, are powering down for the winter and potentially beyond as prices rise due to a confluence of tariffs, war and increasing energy demand. CoinDesk's mining expert Eliza Gkritsi said that "Europe's last bitcoin mining refuge" may no longer be viable.

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The Takeaway: User Centric

(DALL-E/CoinDesk)

The lesson to take away from FTX and other CeFi debacles is not just that "this digital asset investment stuff should have been regulated … yesterday." Instead, it's that disintermediating transactions using software on global peer-to-peer networks could go a long way to avoid these sorts of failures. In other words, decentralized finance (DeFi) might fix this.

The problem with that argument, of course, is that DeFi's risk profile looks very different from that of CeFi. For middleman-less finance to take off, protocols must be not only useful but safe. DeFi only "fixes" things if its risk profile is low enough for everyday people to feel safe enough to actually use it.

Today, DeFi users face a host of meaningful threats the tech has yet to catch up to. Bad actors have many attack vectors. And news of splashy exploits and countless scams is causing some to walk away in frustration, fear and, in the worst case, financial ruin. Many more simply never become users due to the difficulties and risks involved. Users need to be better equipped to avoid predators. Today, the best developers building on Ethereum are working on this issue. MetaMask is collecting data to figure out more predictive forms of transaction monitoring. Wallets are integrating pop-up messages that warn people when an address looks "phishy." And money is being spent on audits.

In 2023, it's likely you'll hear a lot about "account abstraction." Ethereum co-founder Vitalik Buterin described this as updating Ethereum itself to essentially make all addresses programmable, not just smart contracts. This would allow for devs to explore more options to safeguard wallets and improve recovery of lost or stolen funds.

Whatever the solution – and there needs to be many, because there's a multitude of risks and attack surfaces – crypto needs to find ways to make on-chain transactions and peer-to-peer finance safe. Soon. Otherwise the regulators will.

– Bill Hughes, senior counsel and director of global regulatory matters at ConsenSys

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Off-Chain Signals

SEC Heightening Scrutiny of Auditors' Crypto Work (WSJ – paywalled, Reuters – not)
Tether transparency: A lesson in lying (Protos)
The FTC Came Gunning for Fortnite. Is the Metaverse Next? (Blockworks)
North Korea has hacked $1.2B in crypto and other assets (NPR)
These are the Ways Crypto Broke in 2022 (Bloomberg – paywalled)
Uniswap Allies With MoonPay to Bolster Debit Card Transfers (The Defiant)
Wash Trading Accounted For Over Half Of NFT Volume in 2022 (The Defiant)

NEAR Protocol: Optimized for Disruptive Developers

When discussing the optimization of blockchains, many will look to improve on the three pillars of blockchain technology: security, scalability and decentralization. While improvements to these blockchain fundamentals may improve the capabilities of the network, it falls short of making improvements for its users.

While Ethereum recently moved to proof-of-stake (PoS) to work on its fundamentals, NEAR protocol has already set itself on a strong foundation, 10 years ahead of Ethereum's roadmap. Continue here.

*This is sponsored content from NEAR.