New York regulator investigates Gemini over FDIC claims

January 30, 2023

New York regulator investigates Gemini over FDIC claims

The embattled Gemini crypto exchange, which is has $900 million of customer funds locked up in the Genesis bankruptcy and has been charged by the SEC for offering unregistered securities, now has another problem to add to its list. The New York State Department of Financial Services, which is responsible for regulating the exchange portion of Gemini's business, is reportedly looking into whether Gemini misled customers that their funds were protected by FDIC insurance — that is, the insurance typically known for protecting funds placed into accounts with actual banks.

When concerned customers contacted Gemini customer support to ask if their funds were safe at Gemini, in the wake of the collapses throughout the crypto industry, they were reassured by customer support that the fiat currency held by Gemini to back their GUSD stablecoin was held in accounts that were eligible for FDIC insurance. Some customers took this to mean that their holdings with Gemini were safe and protected from the possibility of trouble at Gemini: something they've now discovered was not the case, as customers of Gemini's Earn program cannot withdraw their funds.

Cryptocurrency companies misleading or outright lying to customers about FDIC insurance has been something of a trend this year. In July, the Federal Reserve and FDIC sent a cease-and-desist letter to the bankrupt Voyager cryptocurrency broker, demanding they stop claiming that their USD-denominated funds at the company were protected by FDIC insurance (they weren't). Several weeks later, the FDIC sent a similar letter to FTX US, also demanding they stop making misleading statements about deposit insurance.

"As crypto cratered, Gemini talked to customers about FDIC insurance", Axios

January 27, 2023

Hacked Azuki Twitter account enables theft of pricey NFTs and crypto priced at more than $1.74 million

A green zombie-looking ape with a red warty mouth and sharp teeth, with a turquoise hachimaki and a tie-dye shirt

Mutant Ape #16924, which most recently sold for ~$23,400 (attribution)

Hackers were able to compromise the Twitter account belonging to the popular Azuki NFT project, which they then used to promote a fake NFT drop to its 334,000 followers. Users who tried to mint the NFTs instead had their wallets emptied of pricey NFTs and cryptocurrencies.

Stolen NFTs included 74 Otherdeeds (floor price ~$2,700 each), 3 Porsche NFTs (floor ~$3,100), 57 Beanz (floor ~$2,600), 12 Doodles (floor ~$10,600), 2 Mutant Apes (floor ~$24,300), and 49 Pudgy Penguins (floor ~$9,200) to the attacker. Altogether, those stolen NFTs could fetch almost ~$1 million if sold at floor price.

One single wallet transferred 750,000 of the USDC stablecoin to the attacker, resulting in a particularly brutal loss for one individual.

One of the attacker wallets on Etherscan
Another attacker wallet on Etherscan

January 26, 2023

Coinbase fined $3.6 million by Dutch central bank

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The Dutch central bank levied a €3.3 million ($3.6 million) fine against Coinbase, who began operating in the Netherlands without properly registering. The fine is reportedly unusually large, because of Coinbase's prominence and because it had accumulated a significant number of Dutch customers without the proper registration. Coinbase had been noncompliant from November 2020 to August 2022.

"Dutch central bank fines cryptocurrency exchange Coinbase 3.3 mln euros", Reuters

January 25, 2023

Bithumb executives charged with embezzlement

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South Korean prosecutors filed charges against several executives of the Korean cryptocurrency exchange Bithumb. Those charged included its owner, Kang Jong-Hyun, and his sister Kang Ji-Yeon, who rurns Bithumb affiliates Inbiogen and Bucket Studio. The charges included embezzlement, breach of trust, and fraudulent illegal transactions. The charges follow reports that Bithumb and affiliated companies were being investigated for possible tax evasion, though those investigations are a separate matter unrelated to these charges.

In December, the largest Bithumb shareholder, Park Mo, was found dead outside his home in an apparent suicide after he was named as a suspect by prosecutors in an investigation into embezzlement and stock manipulation.

Korean prosecutors had previously charged the former chairman of Bithumb over an alleged $100 million in fraud, though he was acquitted for lack of proof.

January 25, 2023

Kevin Rose loses pricey NFTs to wallet hack

A rainbow scribble, with a filter applied to make it appear somewhat blurry

Chromie Squiggle #9639, which Rose bought for 16 ETH (~$26,000) in August 2022 (attribution)

Kevin Rose, perhaps best known as the founder of Digg, but also a prominent crypto investor and entrepreneur, lost a substantial number of pricey NFTs when he apparently signed a malicious transaction. The hacker stole 25 Squiggles NFTs, which are trading at a floor price of 13.3 ETH, putting the estimated price based on the floor price at around 332.5 ETH (~$519,000). Rose acquired the Squiggles for between 6.3 and 16 ETH each (~$10,000 to $25,000).

The thief also stole an Autoglyph NFT, which rarely change hands, but which have most recently sold for around 200 ETH ($312,000). Rose had been offering his Autoglyph for sale for 345 ETH ($539,000), but had yet to find a buyer.

Fortunately for Rose, the hacker was apparently unable to steal a CryptoPunk NFT he owned that resembles a zombie. The rare zombie variant of the already pricey NFT have fetched millions — albeit in periods of stronger interest in NFTs.

January 24, 2023

FBI pins the Harmony Bridge hack on North Korea

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A June 2022 hack saw cryptocurrency notionally worth $100 million stolen from Harmony's Horizon Bridge. At the time, blockchain research firm Ellipsis concluded that there were "strong indications" that the hack had been perpetrated by the North Korea state-sponsored Lazarus hacking group. Lazarus has been responsible for several major crypto hacks before this one, including the massive Axie Infinity hack in March 2022.

Now, the FBI has accused two groups of North Korean hackers — Lazarus and APT38 — of perpetrating the Harmony hack. The groups then used Tornado Cash and RAILGUN to launder the funds.

"FBI accuses North Korean government hackers of stealing $100M in Harmony bridge theft", TechCrunch

January 24, 2023

Porsche bungles NFT roll-out

A photo of a white Porsche 911, pictured from the front on

Porsche NFT (attribution)

For some reason, Porsche decided they needed to release a set of Porsche 911 NFTs so that customers could buy "the opportunity to co-create Porsche's future in the Web3 universe" (whatever that means). The set of 7,500 NFTs were available to mint for 0.911 ETH apiece, or around $1,490. If the project sold out, Porsche would have been looking at a windfall of more than $11 million.

Unfortunately for them, things didn't quite go as planned, with collectors balking at the high pricetag. Mints slowed to a crawl far before the 7,500 limit was reached, and the NFTs quickly began trading at a discount on secondary markets (meaning it was cheaper to buy a resold NFT than mint a new one).

Porsche decided to pump the brakes on the mint when fewer than 2,000 had sold. However, they botched that too — they announced they had stopped the mint before they actually did so, which caused the collection's secondary floor price to rise back above the mint price in anticipation of higher scarcity. Observant traders who noticed this were able to arbitrage the price difference, minting new NFTs and immediately flipping them for a profit on secondary markets.

NFT collectors criticized Porsche for appearing to try to jump into web3 without knowing the space, and asking for an exorbitant mint price without a clear plan.

"Porsche Hits Brakes on NFT Mint After Backlash", CoinDesk
"Porsche NFT Collection Fails to Gain Traction as Mint Kicks Into Gear", CoinDesk
Tweet by Porsche NFT Twitter

January 23, 2023

Wormhole hacker becomes the third largest holder of stETH

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After the $320 million hack of the Wormhole blockchain bridge in February 2022, much of the funds remained dormant. Now, however, the hacker seems to have returned. On January 23, they took 95,360 ETH (~$157 million) of the 120,000 ETH they stole (now worth substantially less) and used it to lever up a position in stETH. stETH is Lido-staked Ether, an asset representing ETH that has been staked on Ethereum since it moved to the proof-of-stake model.

Ultimately, the Wormhole hacker became the third-largest holder of stETH as a result. The size of the swaps was so large that it moved the stETH market, increasing trading volume by 3000% and temporarily causing the asset to move above its usual 1:1 peg with Ethereum.

The move, which many crypto enthusiasts took as an indication that the Wormhole hacker was a "crypto degen", is unlike the activities of many crypto hackers, who typically try to launder the money and exit into fiat rather than keep it within the crypto ecosystem.

"Swapping More Than $157M of ETH for stETH and Levering Up, the Wormhole Network Exploiter Is a DeFi Degen", CoinDesk

January 23, 2023

Gemini lays off 10% of staff amid troubles

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Gemini performed a 10% layoff, cutting roughly 100 positions. This move followed a 7% layoff in July 2022, and a 10% reduction just a month prior to that.

Gemini has been having a rough time lately, trying to recoup $900 million of their customers' funds from Genesis, and facing charges from the SEC that their Earn product was an unregistered securities offering.

"Crypto exchange Gemini lays off 10% of workforce in its latest round of cuts", CNBC

January 21, 2023

Binance announces that users won't be able to use SWIFT for transfers below $100,000

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Binance informed its users that they would no longer be able to perform transactions below $100,000 via the SWIFT financial network. According to Binance, this was because their banking partner, Signature Bank, had announced they were implementing that floor for all cryptocurrency exchange clients.

Signature Bank has suggested it intends to step back somewhat from the crypto industry. It is one of the relatively few US banks that services crypto clients, and provided services to FTX among others.

Patrick McKenzie speculated that the change might have been related to AML/KYC, and Binance's "Bond villain compliance strategy".

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