Issue #29

Market Overview

As of the time of writing (Monday 5pm), the total market cap of the crypto asset market is $US1.17T, up 10.0% from last week.

Below is the weekly performance of the top crypto and NFT assets. 

News Headline Highlights

• Hong Kong's government successfully issued its first tokenised green bond valued at 800 million Hong Kong dollars (US$101 million). The 365-day bond at 4.05% yield was offered in collaboration with Bank of China (Hong Kong), Crédit Agricole CIB and HSBC – with Goldman Sachs as the platform provider.
• Kraken and Custodia Bank CEOs, Jesse Powell and Caitlyn Long, accuse regulators of ignoring their warnings about scams and fraud. 
  • Long commented “I handed over evidence to law enforcement of probable crimes committed by a big crypto fraud, starting months before that company imploded and stuck its millions of customers with losses.”
  • Powell mentioned his “infuriating” experience with regulators who ignored the “massive red flags and obviously illegal activity” he pointed out for years. Commenting that the regulators even noted the red flags and said that “it’s complicated” because the firms are offshore, but they were “looking at everybody.”
• Robinhood reported cryptocurrency trading volumes increased 95% MoM in January to $3.7B. This increase exceeds that of equities (up 19% to $46B) and options contracts (up 10% to $83B). 
• PayPal disclosed that its balance sheet includes $604m of crypto in custody held on behalf of clients, down from $690m held at the start of September 2022. The balance comprises $291m of bitcoin and $250m of ether.
• DBS Bank plans to apply for a licence to offer crypto services in Hong Kong, as the Chinese Territory pushes to become a hub for digital assets.

 Crypto Asset Project Updates

• NFT marketplace Blur bombarded the Ethereum blockchain with a $400m airdrop of the BLUR governance token to customers. The airdrop dove nearly $10m in daily volume to the JPEG-trading platform as devs waged war on OpenSea's royalties program.
• Decentralised finance (DeFi) protocol Platypus Finance, was hacked for almost $10m during the week. In an astounding example of how communally supportive the blockchain community is, within a day, security company BlockSec helped recover around $2.5m of funds from identifying a vulnerability in the hackers contract. Further, on chain sleuth ZachXBT mapped out wallet interactions to identify the hacker, finding their Opensea account which had a linked twitter profile. Platypus are currently in negotiations to recover more funds.

Regulation Station

• The European Commission launched a regulatory sandbox that will annually support 20 projects including public sector use cases on the European Blockchain Services Infrastructure.
• New York Department of Financial Services (NYDFS) ordered crypto firm Paxos to stop minting new Binance USD stablecoins ($16B existing in circulation). This is in addition to the SEC lawsuit that Paxos is currently facing.
•  The EU Committee on Economic and Monetary Affairs have published new draft rules that would require banks to give all their crypto asset exposure a proposed risk weight of 1,250% until December 2024. Should these rules be approved, banks holding cryptocurrencies may be legally forced to assign digital assets the highest possible risk rating.
• The US Securities and Exchange Commission (SEC) have proposed amending federal custody requirements, expanding the rules to include assets like crypto. The proposed changes would mandate custodians, including crypto exchanges, secure or maintain certain federal or state registrations, even as regulators are both increasing scrutiny on crypto companies and making it more difficult to secure regulatory approval for crypto products.
• The US Securities and Exchange Commission (SEC) charged Terraform Labs and its CEO Do Hyeong Kwon over their algorithmic stablecoin Terra USD (UST), which collapsed dramatically last year. 
• The US Blockchain Association filed an amicus brief in SEC v. Wahi. The brief calls out a new pattern by the agency - regulation by enforcement against third parties who have no meaningful opportunity to defend themselves.

The Weekly Deal Room

• Taurus, a Swiss digital asset tokenisation platform, raised $65m in a Series B led by Credit Suisse with participation from Deutsche Bank, Pictet Group  and Arab Bank Switzerland.
• Monad, a new EVM-equivalent L1 aiming to deliver 10,000 tps (1 billion tx/day) through changes to both consensus and execution, raised $19m in a Seed Round led by Dragonfly Capital.
• Decentralised web3 communication stack Sending Labs raised $12.5m in a seed funding round co-led by Insignia Venture Partners, MindWorks Capital, and Signum Capital.
• Alongside, a crypto index-focused platform hoping to bring passive, long-term investing to crypto, closed an $11m Seed Round led by a16z.
• Caldera, a web3 layer 2 blockchain 'rollup' company, raised $9m across two funding rounds led by Sequoia Capital and Dragonfly.
• Ironblocks, a smart contract cybersecurity platform, raised $7m in a Seed Round led by Collider Ventures and Disruptive AI.
• Zero-knowledge (ZK) hardware startup Cysic closed a $6m Seed Round led by Polychain Capital.
• Stelo Labs, a web3 security company striving to increase safety of consumers in crypto, raised $6m in a Seed Round led by a16z.
• Orb Labs, a blockchain interoperability company, raised $4.5m in a Seed Round led by Bain Capital Crypto.
• Phi raised a $2m Seed Round led by Chapter One and Delphi Digital to build a “Social gaming onboarding platform for the web3 ecosystem”.

Metric of the Week

Chainalysis, the crypto forensic company that works with global regulators and federal agencies, determined that in 2022 a total value of $20.6B was from identified illicit activity. This is slightly higher than the $18.1B of identified illicit activity in 2021. 

In their report, they note that as expected, total transaction volume fell with the onset of the bear market, however legitimate transaction volumes declined faster than illicit volumes. This resulted in illicit activity rising for the first time since 2019, from 0.12% in 2021 to 0.24% in 2022.

However, of the $20.6B, 43% ($8.8B) came from activity associated with sanctioned entities, in a year when OFAC launched some of its most ambitious and difficult to enforce crypto sanctions yet. Crypto exchange Garantex, which accounted for the majority of sanctions-related transaction volume last year, was sanctioned by OFAC in April 2022. Accordingly, most compliance professionals treat this as illicit activity.

However, Garantex is a Russia-based business. As such, the exchange has been able to continue operating and servicing Russian citizens with impunity.

Source: Chainalysis