March 11, 2023
Issue No. 45
Welcome to this week's AtherXplorer, covering the latest in gaming, blockchain, and everything in between.
This week’s top picks include:
- Blockchain & Defi: Hedera Mainnet Exploit...; Multisig Wallet Vulnerability...
- Gaming: ImmutableX & Warner Bros. Partner up; TSM Enters Web3 Partnership with...
- Web3 & Metaverse: Hermes Asks for Control of Metabirkin NFTs; Meta Building a Decentralized Social Network...
- NFTs: Starbucks' Odyssey Releases First Collection; Otherside Metaverse Launching Second Trip...
- Legal Landscape: Silvergate Bank Winding Down Operations; Nigerian President Aims to Use Blockchain Tech...
Blockchain & DeFi Developments
Hedera Confirms Exploit on Mainnet Led to Theft of Service Tokens
Hedera Hashgraph, a distributed ledger network, confirmed that a smart contract exploit led to the theft of several liquidity pool tokens on the Hedera Mainnet. The attacker targeted tokens on decentralized exchanges derived from Uniswap v2 on Ethereum, which was ported over for use on the Hedera Token Service. The attack was detected when the attacker tried to move the stolen tokens across the Hashport bridge, which consisted of liquidity pool tokens on SaucerSwap, Pangolin, and HeliSwap. The bridge was paused temporarily. The number of stolen tokens was not confirmed.
On February 3, Hedera upgraded the network to convert Ethereum Virtual Machine (EVM)-compatible smart contract code onto the Hedera Token Service (HTS). Part of this process involves the decompiling of Ethereum contract bytecode to the HTS, which is where the attack vector is believed to have come from. However, this has not been confirmed by Hedera in its most recent post.
Hedera managed to shut down network access by turning off IP proxies on March 9, but it has since identified the “root cause” of the exploit and is “working on a solution.” Once the solution is ready, Hedera Council members will sign transactions to approve the deployment of updated code on the mainnet to remove the vulnerability, and the mainnet proxies will be turned back on.
This attack highlights the potential risks involved in creating bridges between different blockchain protocols, as an exploit on one network can lead to the theft of assets on another. It also underscores the importance of thorough testing and auditing of smart contract code before it is deployed on any network.
Multisig Wallets Vulnerable to Exploitation by StarkNet Apps, Says Developer SafeHeron
Multisignature (multisig) wallets can be exploited by Web3 apps that use the StarkEx protocol, according to a March 9 press release provided to Cointelegraph by Multi-Party Computation (MPC) wallet developer Safeheron. MPC wallets are often seen as more secure than single signature wallets, since an attacker can’t generally hack them unless they compromise more than one device. However, Safeheron claims to have discovered a security flaw that arises when these wallets interact with StarkEx-based apps such as dYdX and Fireblocks. When these apps “obtain a stark_key_signature and/or api_key_signature,” they can “bypass the security protection of private keys in MPC wallets,” the company said in its press release. This can allow an attacker to place orders, perform layer 2 transfers, cancel orders, and engage in other unauthorized transactions.
Safeheron implied that the vulnerability only leaks the users’ private keys to the wallet provider. Therefore, as long as the wallet provider itself is not dishonest and has not been taken over by an attacker, the user’s funds should be safe. However, it argued that this makes the user dependent on trust in the wallet provider. This can allow attackers to circumvent the wallet’s security by attacking the platform itself, as the company explained: “The interaction between MPC wallets and dYdX or similar dApps [decentralized applications] that use signature-derived keys undermines the principle of self-custody for MPC wallet platforms. Customers may be able to bypass pre-defined transaction policies, and employees who have left the organization may still retain the capability to operate the dApp.”
The company said that it is working with a number of Web3 app developers, including Fireblocks, Fordefi, and StarkWare to patch the vulnerability. It has also made dYdX aware of the problem, it said. In mid-March, the company plans to make its protocol open source in an effort to further help app developers patch the vulnerability.
A source familiar with the matter told Cointelegraph that StarkEx had known about the vulnerability before Safeheron brought it to attention, noting that the it does not allow an attacker to transfer funds off of layer 2 and back onto mainnet. This seemingly implies that it may not be possible for an attacker to successfully steal funds through the attack.
Lido Finance May Sunset Polkadot & Kusama Liquid Staking
Lido Finance, the DeFi protocol, may sunset its liquid staking on the Polkadot and Kusama ecosystems, according to a proposal posted to Lido's governance forum. The proposal suggests that Lido partner MixBytes will stop developing and providing technical support to Lido on Polkadot and Kusama liquid staking protocols as of August 1, 2023. MixBytes cited several challenges, including market conditions, protocol growth, limited capacity, and priority alignment, for the decision. Lido is the largest DeFi protocol, with approximately $9 billion worth of digital assets locked on the platform. The proposal may affect some $25 million of assets. Investors have staked $22.3 million worth of DOT and $2.34 million of KSM, the native tokens of Polkadot and Kusama, on Lido.
Staking is a popular yield-earning strategy in the digital asset space, where crypto holders can lock up and delegate their tokens to secure proof-of-stake blockchains in exchange for a reward. With liquid staking, investors can keep their capital liquid and use their staked tokens as collateral by receiving derivatives. The proposal is in the preliminary discussion stage yet.
Zherebtsov, the chief product officer of MixBytes and the author of the proposal, suggested halting acceptance of new DOT and KSM for liquid staking by March 15, and automatically unstaking tokens later in June, according to his proposed timeline. The proposal is in the preliminary discussion stage.
Games & Blockchain Gaming
The Final Trailer of The Super Mario Bros. Movie is Here!
ImmutableX Expands Partnership with Warner Bros. with Mobile Web3 Game Blocklete Golf
ImmutableX, a platform for building and scaling Web3 games on the Ethereum blockchain, has expanded its partnership with Warner Bros. Discovery Sports by providing its blockchain platform for the mobile Web3 game Blocklete Golf. The game allows players to collect, train, and trade unique (non-fungible token) NFT-based virtual golfers. The play-and-earn model sets the game apart, allowing gamers to collect, train, and trade unique NFT-based avatars or use them to compete with others. Initially launched on the Flow blockchain, Blocklete Golf will migrate to ImmutableX to leverage its fast transactions and gas-free non-fungible token (NFT) minting backed by Ethereum’s robust security and decentralization.
Blocklete Golf is an interactive mobile golf game where players can select a golfer and play on dynamic courses in head-to-head matchups or tournaments. Players can manage their Web3 athletes, called “Blockletes,” and achieve their goals by increasing attribute levels — directly affecting utility and value based on in-game performance. This partnership extension between Immutable and Warner Bros. Discovery Sports comes after the recent launch of the first interactive trivia and fan loyalty program, which goes live each week during the post-game show Inside the NBA.
ImmutableX’s blockchain infrastructure will provide Blocklete Golf with an inclusive and efficient decentralized framework. Andrew Sorokovsky, vice president of global business development at Immutable, said in a statement, “Their dedication to pushing the envelope and early adoption of web3 proves that decentralized solutions are on the fast track to mass adoption — offering millions of people new and exciting ways to interact with entertainment mediums while retaining full control over their digital assets.”
Esports Giant TSM Enters into Web3 Gaming Partnership with Avalanche
Esports team TSM has announced that Avalanche will be its exclusive blockchain partner as TSM develops its competitive gaming platform, Blitz. The partnership aims to onboard millions of esports gamers into Web3, and TSM will be launching a custom subnet using the native AVAX token as gas to bring Blitz on-chain. The platform will also use Avalanche asset manager Core to facilitate the buying and storing of digital assets.
According to a press release, TSM plans to host Avalanche-branded tournaments on the Blitz subnet to help gamers improve their skills with performance insights and learning tools. The platform will also allow players to compete in these Blitz Arenas for prizes. Avalanche's fully customizable subnets were created to help organizations like TSM push the boundaries of what is possible for gaming with sub-second transaction speed, scalability, and security for millions of users.
The partnership with Avalanche comes after TSM ended its partnership with bankrupt crypto exchange FTX in November. As part of its deal with FTX, the esports league embedded FTX branding across its organization, team, and player social media profiles. The partnership with FTX was once the largest in esports history and was valued at $210 million.
John Wu, president at Avalanche blockchain parent company Ava Labs, said, "Avalanche’s fully customizable subnets were created to help organizations like TSM push the boundaries of what is possible for gaming with sub-second transaction speed, scalability, and security for millions of users." TSM plans to utilize Avalanche's technology to bring its gamers onto the Web3 platform and provide performance insights and learning tools to improve their skills while competing for prizes.
The partnership between TSM and Avalanche is expected to increase the adoption of Web3 in esports gaming and provide gamers with a unique gaming experience. TSM's custom subnet using Avalanche's native AVAX token as gas will provide gamers with fast transaction speeds, scalability, and security while participating in Blitz Arenas for prizes. The partnership aims to push the boundaries of what is possible in gaming with blockchain technology and to onboard millions of esports gamers onto the Web3 platform.
2023 Will Be the Year that Blockchain Games Deliver Quality and Fun: Polygon
Polygon's Vice President of Games, Urvit Goel, has said that 2023 will be a critical year for blockchain gaming, where the industry will be judged heavily on the promises made about great games. Goel believes that the sector is moving closer to becoming an adult industry, with the true builders pushing through and removing a lot of the noise that came out during the early years of the bull run for blockchain and cryptocurrencies. Polygon is working to help builders come to market, whether that is through broad tooling to make it easier to launch or new technology for scaling. The company has set up a $100m fund to invest in Web3 gaming and other verticals.
Goel said that the competition among blockchains will result in many successful blockchains, and Polygon does not view others as competition. Instead, the main task is to evangelize the tech so that more people are willing to adopt Web3 gaming. He added that the $100m fund is an ecosystem fund that focuses on multiple verticals, including gaming, where the company deploys capital to game builders. The fund is still operational, and the company is still looking at the builders applying to it. The fund has made hundreds of investments so far.
As per Goel’s commentary, blockchain games are already strong, as the number of active wallets has been consistently going back up in recent months. He added that the sector is down but has held quite strong, and the thesis is that players are going to play games whether we are in a bull market or a bear market. Polygon has been at the forefront of Web3 gaming, integrating the NFT marketplace Magic Eden and partnering with top names in the industry such as The Sandbox and Dencentral Games.
The focus is on helping developers get to the market, and consumers will tell what they like. He also acknowledges that a lot of Western gamers have been vocal about their negative reaction to blockchain games as scams. He added that Polygon is working with builders and developers to build better products and connect them to technology and marketplaces. Polygon is also working with Square Enix on Symbiogenesis, a new blockchain game.
The collapse of FTX is a negative event hanging over the industry, according to Goel. He noted that there is a difference between a centralized exchange versus true blockchain technology enablement, and the fallout from FTX will take months to unfold. Other funds are also putting money into blockchain games, which helps because Polygon is not planning to completely bankroll blockchain game studios on its own.
Web3 & Metaverse
Hermes Asks Court for Control Over Metabirkin NFTs
Hermès International, the French luxury brand, has requested a US court to block NFT artist Mason Rothschild from selling or promoting his MetaBirkin NFTs following a court verdict that ruled in favor of the fashion house. In January 2022, Hermès accused Rothschild of stealing its intellectual property to create his 100-edition non-fungible token (NFT) collection based on the brand's iconic Birkin bag. The recent verdict awarded Hermès $133,000 in damages, and the brand has now asked a New York judge to prevent Rothschild from selling or promoting NFTs that use the Birkin trademark, among other requests.
Hermès has also requested that Rothschild transfer control of any Metabirkin NFTs in his possession to a crypto wallet designated by the company, as well as the MetaBirkins smart contract, MetaBirkins domain names, and MetaBirkins social media handles. Furthermore, the brand has asked Rothschild to transfer royalties received from the MetaBirkins project to Hermès since it claims that Rothschild is still receiving a 7.5% creator royalty on the NFT marketplace LooksRare. According to data on Etherscan, the last sale of a MetaBirkin NFT took place in November 2022 for 1.2 wrapped ether (about $1,555), while the last transfer of a MetaBirkin NFT between wallets took place in December 2022.
Rothschild's attorney, Rhett Millsaps, said that the filing was "a gross overreach by Hermès and an attempt to punish Mr. Rothschild because they don’t like his art." Millsaps said that he and his team would file a response on Friday.
The case is one of many disputes that have arisen in the NFT space, with brands seeking to protect their intellectual property rights, while artists and creators seek to push boundaries and create new art forms. There have been several instances of brands pursuing legal action against NFT creators for using their trademarks or designs, including the NBA, Louis Vuitton, and Gucci.
As NFTs continue to gain popularity, legal disputes in the space are expected to increase. The lack of regulation and legal precedent surrounding NFTs has made it difficult to navigate the legal landscape. Nonetheless, as more brands and artists enter the space, there is a growing need for legal frameworks that protect intellectual property rights while allowing for innovation and creativity.
Meta Building a Decentralized Social Network
Meta is in the early stages of developing a decentralized social network that will allow users to post text-based updates. Codenamed P92, the app will allow users to log in using their existing Instagram credentials. The project is being led by Adam Mosseri, who runs Instagram, and the most striking aspect of the project is that the network will be decentralized. In a decentralized network, individual users can set up their independent servers and create server-specific rules for content moderation. Building a decentralized social network would allow Meta to experiment with an app that pushes back on standard criticisms of Facebook and Instagram.
While Facebook has relative ease of use, it has drawn massive regulatory scrutiny for its top-down approach to content moderation and its efforts to thwart competition. Building a decentralized network could be a way for Meta to disrupt its ailing competitor Twitter. A decentralized network is more resistant to censorship efforts from governments and enables users to choose from a variety of ranking algorithms that better reflect their desired experience. It would also allow different groups to set their own community standards with a floor of rules set by Meta, in a similar fashion to how Reddit's individual communities work.
Meta's new app will support ActivityPub, a network of connected servers that enable web publishing through shared protocols. The app will be interoperable with other social products, helping Meta as it faces ongoing scrutiny over whether it has maintained its market power through anti-competitive acquisitions. One of the challenges for developers is that basic social network functions like following users become complicated when accounts are located across a vast network of servers.
Animoca Brands and Planet Hollywood Launch Club 3 as a Physical Private Club with Web3 Perks
Animoca Brands and Planet Hollywood have formed a joint venture called Meta Hollywood to launch Club 3, a physical private club for the Web3 community. Club 3 will be a members-only club that will act as the physical meeting place for the greater global community involved in Web3, NFTs, and open metaverse industries. The first location will open in Los Angeles in the second half of 2023, with plans to expand to other popular cities. Club 3 will offer four types of memberships, with perks such as access to amenities and an exclusive community chat.
Club 3 will be a 10,000-square-foot facility consisting of diverse dining options, including a main dining room and a rooftop restaurant, eclectic bars and a cocktail lounge, meeting rooms, karaoke rooms, and other facilities. Additionally, Club 3 will offer fully programmable areas for experiential events that will be available both in person and virtually, such as industry events, community meetups, talks, experiences, seminars, AMA sessions, and more.
Club 3 will be integrating Web3 mechanics into the club’s operations such as community voting on seasonal menus, specialized perks, and collaborative promotions for certain NFT projects and membership holders. Membership fees for a Social Membership and a Founding Membership are $2,500 and $7,500, respectively, and all memberships can be upgraded to a Global Membership for a fee of $1,500. Memberships are available as mintable NFTs, and interested parties can go to www.club3members.com to reserve a place on the waitlist.
Robert Earl, chairman of the Planet Hollywood Group, said in a statement that Club 3 is a club composed of groups of like-minded individuals, and the setting is designed to be comfortable with great food, wonderful cocktails, and exciting programming. Club 3 is truly international, both in its footprint around the world and its membership base.
Yat Siu, executive chairman of Animoca Brands, said in a statement that Club 3 will foster and galvanize the broader Web3 community and serve as a launchpad for those wanting to learn more about this new world. Members will interact with the club’s numerous facility perks and experience what Meta Hollywood can offer. With this project communities across the Animoca Brands ecosystem will have access to new possibilities.
AI Artist Claire Silver to Show NFT Collection at Louvre
Claire Silver, an AI artist, is set to debut her new NFT collection at the Louvre Museum in Paris later this month. The collection, titled "can i tell you a secret," is an "autobiographical series of 100 post-photography pieces created with AI." Alongside the new collection, a one-of-one NFT artwork titled “Love in the 4th Turning” will exhibit at the Louvre. The piece, based on the Strauss-Howe generational theory, is available on OpenSea, with the top bid at $68,677. Silver has signed for representation with global talent agency William Morris Endeavor (WME) as its first AI artist, as the agency expands its roster of NFT artists and developers.
Silver is not the first AI artist to exhibit work at the Louvre, but the exhibition comes as major art institutions around the world are embracing blockchain-based talent. Pseudonymous NFT collector and influencer Cozomo de’ Medici recently donated several of his digital artworks to the Los Angeles County Museum of Art (LACMA), while Yuga Labs donated a CryptoPunk to Paris’ Centre Pompidou. NFT artist Refik Anadol is presenting his generative art at the New York Museum of Modern Art (MoMA) in a temporary installation titled "Unsupervised" that runs until April 15.
Superchief Gallery, a physical gallery space in New York and Los Angeles that exhibits NFTs, will facilitate Silver's Louvre exhibition. The show begins on March 21. WME has been slowly expanding its roster of Web3 talent, with Dapper Labs and CryptoKitties co-founder Mack Flavelle, NFT gallery Bright Moments, NFT project Non-Fungible Heroes, NFT startup Boss Beauties, and NFT artist Valfré among its list of NFT artists and developers.
Silver's new collection is not only a creative use of AI but also highlights the growing intersection between traditional art spaces and blockchain-based talent. As major art institutions continue to embrace NFTs, the technology's impact on the art world will continue to grow.
Yuga Labs' Otherside Metaverse to Launch Second Trip on March 25
Yuga Labs, the parent company of Bored Ape Yacht Club, recently disclosed details for the second trip of its Otherside metaverse platform. The second test will take place on March 25 and will feature a two-hour narrative experience led by four Otherside team captains. The event is open to holders of Otherdeed non-fungible tokens (NFT), which are linked to the land in the as-of-yet unreleased Otherside metaverse. Each holder, or "Voyager," will have the opportunity to invite a guest to join them in the experience. The live experience aims to accommodate up to 10,000 voyagers on a first-come-first-serve basis. Non-holders can also watch a live stream of the event on the company's YouTube channel.
Yuga Labs hosted its "first trip" in July 2022 for over 4,600 players, which resulted in major congestion on the Ethereum network. Voyagers on the second trip who attended the first trip will be eligible to earn a unique Obelisk Piece linked to the overall Otherside narrative.
Yuga Labs co-founders Wylie Aronow and Greg Solano told CoinDesk in December that the company views The Otherside as the intersection of all the projects under its brand umbrella. The company first teased its metaverse ambitions in April 2022 as a platform where players could own land and turn their existing NFTs into playable characters. Yuga Labs initially sold 55,000 Otherdeed NFTs linked to virtual land ownership, raking in about $320 million in primary sales.
As the metaverse continues to grow, it will be interesting to see how companies like Yuga Labs adapt to the changing landscape. The Otherside metaverse platform is still in development, but the company's use of NFTs and live events is a promising sign for the future of the platform.
Starbucks' Odyssey Releases The Siren Collection, Its First Limited Edition NFT Drop
Starbucks Odyssey, the coffee company’s Web3 loyalty program, has launched its first collection of non-fungible tokens (NFTs) named "Stamps". The Siren Collection consists of 2,000 unique items and features the company’s iconic Siren, with a price of $100 per token. Members of the invitation-only beta program were able to purchase two stamps each, either by credit card or by connecting their MetaMask wallet. The stamps can be collected or sold on Nifty Gateway.
However, upon launch, members of the Starbucks Odyssey Discord group complained of problems accessing the site and error messages, with the site seemingly overwhelmed by traffic. Despite the issues, the collection sold out in 18 minutes and secondary sales quickly soared. The floor price for a Siren Stamp has already passed $550.
NFT Stamps that members have unlocked from completing Journeys are already available in the Nifty Gateway secondary market, with the floor price of the "Holiday Cheer Edition 1 Stamp" hitting $1,398, with $170,636 in trading volume as of writing.
The Starbucks Odyssey program, which launched on the Polygon blockchain, aims to make the experience user-friendly for non-crypto natives by emphasizing the ability to purchase stamps with only a credit card. Andy Sack, co-founder and co-CEO of Forum3, which partnered with Starbucks on launching the program, says that Odyssey is a "next-generation loyalty platform" aimed at building a brand relationship between customers and Starbucks.
As NFTs continue to gain popularity, Starbucks' move to release its own collection of collectibles can be seen as an attempt by the company to stay ahead of the game and continue its expansion into the Web3 space.
Magic Eden Launches Mint Madness with Free Web3 Gaming Mints
Magic Eden, a non-fungible token (NFT) marketplace, has announced the launch of a series of free mints of Web3 games throughout March. The initiative, dubbed "Mint Madness," will offer 13 Web3 games, developed by traditional gaming studios and Web3-native creators, across the Ethereum, Solana, and Polygon blockchains for free. The games all use NFTs for in-game capabilities, including the popular AAA first-person shooter game Shrapnel and the gaming metaverse Planet Mojo.
According to Chris Akhavan, Chief Gaming Officer at Magic Eden, many games entering the Web3 space do not necessarily need to use NFTs as a monetization tool. However, NFTs are crucial user engagement tools that enable developers to share their vision and work with a highly captive and invested audience. The initiative aims to enhance user engagement by providing a leaderboard of the top NFT traders across Mint Madness collections on its social media channels.
The launch of Mint Madness is a signal of the growing interest in blockchain gaming and the potential of NFTs to enhance user engagement in the gaming industry. NFTs allow gamers to own in-game assets and participate in the development of games, providing a more immersive and personalized gaming experience.
The use of NFTs in gaming has gained traction over the past year, with several gaming studios adopting NFTs for in-game assets and monetization. For example, Ubisoft, a leading gaming studio, launched a blockchain game called "HashCraft" in December 2021 that uses NFTs as in-game assets, allowing gamers to own and trade unique items. The initiative is expected to drive the adoption of NFTs in gaming and offer developers new ways to engage with users and monetize their work.
Amazon to Launch NFT Marketplace?
Amazon is reportedly planning to launch an NFT marketplace on April 24, according to anonymous sources cited by Big Whale. The platform will initially be available to U.S.-based customers before being rolled out internationally. The report went on to say that Amazon has delayed the launch of the marketplace twice since the high-profile collapse of FTX last November. The marketplace will reportedly launch with 15 NFT collections, and shoppers will be able to purchase physical goods tied to some of the NFTs that will be delivered to their doorstep.
Many analysts believe that Amazon launching an NFT marketplace could be a significant vehicle for onboarding new web3 users. The platform has more than 310 million active customers worldwide. Crypto influencers such as Waleswoosh have speculated that if only 1% of Amazon's customers show interest in the new digital marketplace, the space will grow exponentially overnight.
However, critics of Amazon's rumored NFT marketplace are decrying claims that the platform will only accept credit and debit cards. Users will reportedly not be able to purchase NFTs using cryptocurrency or wallets such as Metamask. This has raised questions about Amazon's commitment to crypto assets.
Despite these concerns, Amazon has previously shown an interest in blockchain technology. In January, it partnered with Ava Labs, the team behind the Avalanche Layer 1 blockchain, to offer AWS services to developers.
The NFT market has seen explosive growth in recent months, with high-profile sales and increasing interest from mainstream brands and celebrities. Amazon's entry into the NFT market could further validate the space and bring more attention to blockchain technology as a whole. However, the platform's apparent lack of support for crypto assets has sparked some criticism and skepticism from the crypto community.
National Policies & Legal Updates
Nigerian President-elect Aims to Use Blockchain Technology in the Banking Sector
The President-elect of Nigeria, Bola Tinubu, has released a manifesto that outlines his plan to enable the use of blockchain technology and cryptocurrencies in the country’s banking and finance sector. The proposal suggests reviewing the existing regulations on digital assets to make them more business-friendly and to provide a framework for regulating cryptocurrencies and other digital tokens in Nigeria. The proposed regulations would require digital asset companies to register with the Securities and Exchange Commission (SEC) and mandate that all digital asset offerings and investments comply with SEC regulations.
Tinubu plans to establish an advisory committee to review SEC regulations on digital assets and create a more efficient and business-friendly regulatory framework. The manifesto suggests that the use of blockchain technology can be encouraged in banking and finance, identity management, revenue collection, and the use of crypto assets. Tinubu said the proposed reform to SEC regulations would help attract more investors in the digital and economic sectors and stimulate economic growth.
The government hopes that the proposed regulatory reform will help expand the adoption of the eNaira, the country's central bank digital currency. The CBN has also published a research report exploring the creation of a new framework to introduce a stablecoin in Nigeria. The move aligns with Nigeria’s increasing crypto adoption, which is among the highest in the world.
Some cryptocurrency enthusiasts have criticized the existing regulations for lacking provisions that allow crypto users to transact with their local banks. The proposed regulations may help address these concerns and promote a more business-friendly environment for digital assets in Nigeria.
US Senators Write to Banking Regulators About Potential Crypto Discrimination
Republican senators in the United States, led by Bill Hagerty, have written a letter to the heads of federal banking regulatory agencies expressing their concern over the ideological motivations behind recent regulatory moves in relation to cryptocurrency. In their letter addressed to Federal Reserve Board Chair Jerome Powell, Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg, and Office of the Comptroller of the Currency (OCC) Acting Comptroller Michael Hsu, the senators questioned the agencies' policies, which they compared to the Obama administration's Operation Choke Point. The senators pointed out that regulators' policies have resulted in unfortunate consequences for the cryptocurrency sector, such as the closing of crypto firms' bank accounts.
The senators were referring to the joint statement released by those agencies on January 3, in which they stated that "Issuing or holding as principal crypto-assets […] is highly likely to be inconsistent with safe and sound banking practices." They also pointed to a February Fed policy statement that stated that "legal permissibility is a necessary, but not sufficient, condition" for banking activity, with specific reference to crypto, and the Biden administration's January "road map" that called for agencies to "ramp up enforcement." The senators expressed their worry that overreaching behavior by the banking regulators will inevitably bleed into other legal industries.
The senators posed several questions to the regulators in their letter. They asked how their increased supervision will help consumers, whether it is possible for banks to provide services to crypto firms at all under the updated guidance, and whether the agencies plan to release similar guidance for other industries. The senators are joining a conversation in the crypto community concerning the voluntary liquidation of Silvergate Bank, and that talk may heat up with the FDIC's closing of Silicon Valley Bank.
The senators' letter reflects the ongoing debate among regulators and policymakers worldwide concerning the regulation of cryptocurrency. There is concern about the potential use of cryptocurrencies in illegal activities and the risks they pose to consumers, but there is also recognition of the potential benefits of cryptocurrencies, such as their ability to increase financial inclusion and foster innovation. The regulators' statements and actions referred to in the senators' letter appear to be an attempt to strike a balance between these competing interests.
It is unclear how the regulators will respond to the senators' questions. However, the letter demonstrates the senators' interest in the issue and their willingness to engage with regulators on the matter. It also highlights the need for continued dialogue and cooperation between regulators and policymakers as they seek to develop an appropriate regulatory framework for cryptocurrencies that addresses the risks while harnessing the potential benefits.
Crypto-Friendly Bank Silvergate to Wind Down Operations
Crypto-friendly bank Silvergate has announced it is winding down operations and voluntarily liquidating the bank due to recent industry and regulatory developments. Silvergate Capital, the holding company of Silvergate Bank, said the wind-down and liquidation plan includes full repayment of all deposits, while the company is considering how best to resolve claims and preserve the residual value of its assets. All deposit-related services remain operational as the company works through the wind-down process, it said. The news follows Coinbase, the largest US-based cryptocurrency exchange, announcing it is halting payments with Silvergate Bank.
Silvergate has recently come under scrutiny from US regulators, with the White House confirming it was tracking the bank's condition. US Senator Elizabeth Warren accused “crypto-friendly” banks like Silvergate of opening the banking system up to the greater risk of “crypto collapse,” which she says will leave American taxpayers holding the bag. Warren’s remarks prefaced a virtual panel discussion titled “Confronting the Crypto Challenge: Learning From a Meltdown."
Silvergate Bank’s voluntary liquidation follows a joint statement from the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, that “issuing or holding as principal crypto-assets is highly likely to be inconsistent with safe and sound banking practices.” The statement was followed by a Fed policy statement saying that “legal permissibility is a necessary, but not sufficient, condition” for banking activity in relation to cryptocurrency, and the Biden administration’s January “road map” calling for agencies to “ramp up enforcement.”
Silvergate’s announcement raises questions about the future of the crypto banking sector. Four Republican senators recently questioned the ideological motivation behind the regulators’ policies in regard to cryptocurrency, likening them to the Obama administration’s Operation Choke Point. The senators asked how the increased supervision will help consumers, whether it is possible for banks to provide services to crypto firms under the updated guidance, and whether the agencies plan to release similar guidance for other industries.
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