Web3 is Going Just Great

On March 1, Silvergate revealed that they would miss the deadline to file their annual report with the SEC, which they blamed on regulatory inquiries. They also revealed even more losses, which added to the massive $887 million in losses they experienced in Q4 2022. They also disclosed that they were having to evaluate whether the bank was going to be able to survive.

Silvergate's stock plunged on the news, worsening its already marked decline in price over 2022–23. Some crypto firms began distancing themselves from the bank, as well: Coinbase announced on March 2 that they would no longer be transacting with Silvergate "in light of recent developments and out of an abundance of caution". Galaxy Digital, Paxos, CBOE, Gemini, Crypto.com, and Bitstamp also announced they would cease transfers to and from Silvergate, and Circle announced they would be "unwinding certain services with them".

Shortly after its launch, a group of developers accused Binance of stealing an idea they had presented at a December 2022 BNB Chain hackathon. Those developers had been awarded first place and $5,000 for "Chatcasso", a nearly identical tool.

Binance has refuted the allegations of theft, with a spokesperson acknowledging the "similarities" but claiming that "Bicasso was designed and developed independently more than two weeks before the BNB hackathon".

"It's disheartening to see a company that claims to support innovation and development steal from the very people who are working hard to build the ecosystem. Who would feel safe entering a hackathon? I don't." wrote one of the developers from the team. The developer also stated that they had not signed any contracts that would have assigned the rights to their work to the company, as is the case in some hackathons.

After zachxbt's investigation, BitBNS admitted that they had hidden the hack from customers. "Law enforcement advised us that the users should be educated about the incident only after the investigation is completed or reaches a dead end," said BitBNS CEO Guarav Dahake, who also said that some funds were ultimately recovered thanks to law enforcement and cooperation from other exchanges.

In direct messages to a Vox journalist in November 2022, shortly after the FTX bankruptcy, Bankman-Fried wrote that Singh had left, and that he was feeling "ashamed and guilty" because customer deposits were missing.

According to bankruptcy filings, Singh had received a $543 million loan from Alameda Research. Some of this may have gone towards illegal political donations, which Singh admitted in court to making, saying they were intended to bolster Bankman-Fried's and FTX's influence among politicians.

Later, 80% of funds in the liquidity pool for the defi project LaunchZone were suddenly drained, tanking the LZ token price over 80% to $0.026 from its previous price of around $0.15. The stolen funds were priced at around $700,000.

Some questioned if LaunchZone had rug-pulled. However, the project claimed that "$LZ is being hacked from [Dungeonswap] exploiter" and urged its users to "please keep calm". They also announced that they had paused trading and transfers of the LZ token.

John Woods, the CTO of the Algorand Foundation, acknowledged the spate of hacks, writing, "I agree that there's too many of these hacks to be a coincidence". However, he stated that he was confident it was not an issue with Algorand itself. The Algorand wallet provider MyAlgo subsequently urged users to withdraw funds from wallets that use mnemonic phrases for recovery, suggesting that there may have been an issue with their software.

The thief sold all the NFTs and then transferred the proceeds from the sales to their own wallet. Altogether they made off with 127.3 wETH (~$208,000).

On Twitter, hideyoapes explained that they had downloaded and installed the MetaMask wallet extension from MetaMask's official website. "I didn’t think anything of it because it was the legit site and verified chrome app. While I was sleeping all my assets were sold," they wrote. At this point, it's not clear how exactly the hack was perpetrated.

One "coordinated restart" apparently wasn't enough, because a second one followed later that day. Developers reportedly didn't know why the blockchain suddenly began to slow, though it followed shortly after validators began adopting a new version of Solana code, pointing to a possible culprit in the new release. The new version had reportedly operated for six months on the testnet before it began to be deployed.

Other theories were also considered, as reported by CoinDesk: "One leading theory was that a 'fat block' gunked up the blockchain's mechanics."

The outage is reminiscent of the ones that plagued the network through 2022, leading some to question whether it could be suitable for replacing critical infrastructure.

This decision was what allowed Jump Crypto to obtain a court order requiring the Oasis platform to "upgrade" a smart contract in such a way that Jump Crypto could remove stolen funds from where the hacker had placed them on the Oasis protocol. Oasis released a defensive statement, writing that their cooperation in the recovery was "only possible due to a previously unknown vulnerability in the design of the admin multisig access", and that "we will be making no further comment at this time". Oasis is a frontend for the MakerDAO project, which was originally started as part of MakerDAO but later spun into a separate entity, though it still appears to enjoy preferred status by MakerDAO.

The stolen funds in question were the proceeds of the February 2022 Wormhole bridge exploit, in which attackers stole 120,000 wETH (then ~$326 million; now $192 million). After the hack, Wormhole's parent company Jump Crypto plugged the hole left by the hack with their own funds. Since then, the attackers have been moving the funds throughout the cryptocurrency ecosystem, even taking out a highly-leveraged position on in Lido-staked Ether last month.

Ultimately, Jump was able to recover around $140 million via their "counter-exploit". While many celebrated the recovery, some were concerned about the precedent of a so-called defi platform changing a smart contract to remove funds from a wallet at the direction of a court. Some described the upgradability as a "backdoor". "If they'd do it for Jump, what does that say about possible coercion via state actors?" wrote one trader on Twitter.

Ultimately, the project delivered a game that was a far cry from Sim City, and which only a small subset of players designated as "leaders" could even play. As interest in NFTs and crypto prices began to fall, the community became increasingly dissatisfied with the project creators, who they felt had delivered a subpar game, engaged in an additional cashgrab mint, and took actions like performing a reverse-split of the token which they believed harmed secondary market prices.

Tensions emerged between the project team and the community, with the project team dismissing all criticism as "FUD" and accusing their community members of "sabotage", and community members accusing the project team of rug-pulling and failing to listen to feedback. The team shut down the project Discord, claiming that the community was only making it harder for them to do what they had promised to do, and saying that the attacks were damaging to their mental health. The team promised to complete the last item on the roadmap, but stated that they would not be continuing to develop the project or add additional roadmap items due to the current NFT markets and the "non-stop attacks from the community".

Very shortly after closing the Discord, the project team changed their mind and announced that they would be closing the project entirely. They announced that the upcoming battle would be the last available to play, but that they would be airdropping tokens to players as promised in the last item on the roadmap, and open-sourcing the code. Multiple project team members deleted their social media, and project AMAs were wiped from the Metroverse YouTube channel.

These gestures were far from enough to satisfy an angry community, some of whom threatened to dox the anonymous team behind the game or take legal action against the founders. The team themselves fired back with legal threats, contacting community members to tell them that they believed their conversations on a separate Discord server involved illegal activities that are "not only morally reprehensible but may also constitute serious criminal offenses".

Some community members claimed to have spent tens of thousands of dollars on the project. "I spen[t] like 25 eth at 3k" wrote one. "I spen[t] 250k" shared another.

The firm built credibility by sponsoring an APPG — all-party parliamentary group — and its co-founder, Luke Sullivan, was active as a speaker for parliamentary groups and events hosted by MPs. The firm promoted itself based on these ties to the UK government, including by publishing a blog post about how they "brought the Metaverse to the Palace of Westminster".

Some investors say they have lost more than $100,000 each. One such investor is Alan Rogers, a former Premier League footballer who sunk around $50,000 into the rather Ponzi-looking scheme.

The new indictment includes additional information about Bankman-Fried's alleged fraud. The indictment details SBF's attempts to circumvent due diligence by US banks by creating a fake company called North Dimension. Via North Dimension, SBF diverted funds to FTX, which was unable to get a bank account.

Bankman-Fried has entered a not guilty plea to the original eight charges, but has not yet entered a plea for the additional four.

These criminal charges add to securities fraud and other civil charges from the SEC, as well as civil charges out of the CFTC. Both civil cases have been stayed pending the outcome of the criminal case.

Many users of WazirX were angry, accusing the company of "abandoning the community".

Platforms are expected to provide the pre-registration undertaking while working toward registration with Canadian regulators. Companies who don't comply with the new pre-registration requirements will have to close Canadian accounts and prohibit Canadian users from accessing their services.

After partnering with the renowned auction house Christies to sell nine early-access mint passes, the NFTs were launched in April 2022. Each one started minting at 3.33 ETH in a Dutch auction, which at the time was around $12,000. Now, the NFTs have been selling for around 0.01 ETH (~$17).

The project's social media accounts went dormant late in 2022. On February 21, 2023, the project announced that "As the project founders, we have decided that it would be best to put a pause on Friendsies and all future digital goods for the time being... However the volatility and challenges of the market have made it very difficult to move this project forward in a way we can be proud of. For now, we have decided that it's best to allow the space to further mature." Some who asked questions like "So no AI friendsies as promised in your roadmap? What's going on?" found themselves blocked, and shortly afterwards the project deleted its Twitter account.

After being called out by crypto sleuth zachxbt for rug-pulling, the Twitter account returned to insist that they were not rug-pulling, and that "we were overwhelmed with hate and threats". Some Friendsies holders also blamed crypto influencers who had promoted the project near the beginning.

Galois also sold its claim on FTX to a distressed buyer for around $0.16 on the dollar.

The attacker was able to swap their tokens for 931 ETH ($1.57 million), which they then laundered through Tornado Cash.

"There's no excuse for an exploit, but these things happen," the project wrote on Twitter.

Pierce had made posts on Twitter, including writing shortly after he was fired from ESPN that "ESPN I don't need you. I got EthereumMax. I made more money with this crypto in the past month than I did with y'all in a year. TRUTH shall set u Free". The SEC pointed out that although he had been given EMAX tokens prior to the post, they were priced at around $46,000, not nearly the more than $1 million he'd made at ESPN over the previous year. Pierce later made a post claiming that he held more than $2.5 million of EMAX tokens, but the SEC alleged in the lawsuit that "his own personal holdings were in fact far lower" and that Pierce had been provided the screenshot of another person's holdings.

In October 2022, Kim Kardashian paid $1.26 million to settle charges over touting the same cryptocurrency, a fairly unknown token that nevertheless splashed out heavily for influencer and celebrity promotion in what appears to be a pump-and-dump scheme.

Although Loyalist had been largely inactive since October, shortly after zachxbt published his research in February 2023, Loyalist moved nearly $1 million in the DAI stablecoin out of one of the wallets identified by zachxbt.

According to the SEC, Kwon "repeatedly misled and deceived investors" about the characteristics and stability of Terra and Luna, and tricked investors into believing that a popular Korean mobile payments platform used the Terra blockchain.

Kwon has been on the run from the law since Korean authorities filed a warrant for his arrest in September 2022. An Interpol red notice followed soon after. He is reportedly hiding out in Serbia, and Korean authorities reportedly traveled there in early February to hunt for him.

The exploit was a flash loan attack that allowed them to drain some protocol pools, also causing the stablecoin to lose its dollar peg and drop to around $0.48. A team member reported on the project's Discord that "all operations are paused until we get more clarity".

The following day, the project reported they had recovered $2.4 million of the stolen funds, and were working with crypto sleuth zachxbt, who had leads as to the hacker's identity. Later that month, Platypus announced that French police had arrested two suspects, who had tried to withdraw stolen funds through Binance — to whom they had submitted identification documents for KYC purposes.

Anyway, Bitcoin seems to be having its own little resurgence of NFT mania. On February 9, an "Ordinals Punk" — the Ordinals version of CryptoPunks — sold for 9.5 BTC (~$218,000). That record has now been broken by Inscription 2042, which is not an image but rather a 1-second-long audio recording of a fart sound. The NFT reportedly sold for 12.3 BTC (~$280,000), though it's tough to verify given the lack of any sort of Ordinals marketplace.

Many of these companies have taken the (true) statement that the company's insured depository accounts at various banking institutions are FDIC insured and presented it to customers in a misleading way, and the FDIC wants them to cut it out. The FDIC also demanded websites who published statements like "Is CEX.io Safe? Yes, Cex.io is a safe crypto exchange. Actually, one of the safest on the market since they are FDIC insured..." take them down.

CEX.io is a London-based cryptocurrency exchange with comparatively low trading volume compared to its larger competitors like Binance or Coinbase.

Terra and Luna dramatically collapsed in May 2022, and South Korean authorities are still hunting for Terra leader Do Kwon, who is reportedly hiding in Serbia. Earlier this month, Korean authorities reportedly traveled to Serbia to try to locate him, but were unsuccessful.

dForce contacted the hacker via blockchain transaction, offering to negotiate a bounty. Several days later, the project tweeted that the attacker had "c[o]me forward as a whitehat", and that the funds had been fully returned. "We have agreed to offer a bounty and will drop all on-going investigation and law enforcement actions," they announced.

Nearly simultaneously, the SEC sent a Wells notice to Paxos, informing them of imminent enforcement action. According to the Wall Street Journal, the SEC told Paxos they intended to sue the company for violating investor protection laws, and that the SEC believed Binance USD was an unregistered security.

Paxos agreed to stop minting new BUSD tokens (but will continue to honor redemptions), and said in a statement that they would be ending their stablecoin-minting relationship with Binance. As for the SEC, Paxos has promised to "vigorously litigate if necessary", arguing that BUSD is not a security.

It's not quite clear the extent of the NYDFS investigation, though it joins rumors (denied by Paxos) that they were also being investigated by the US Office of the Comptroller of the Currency (OCC), which regulates banks. Paxos has a provisional banking charter, which it received from the OCC in 2021. It also has a virtual currency license, which is issued by the NYDFS.

Shortly after, the project CEO began dumping tokens on the market, cashing out 44,000 UMAMI tokens. These were ostensibly priced at $800,000, though the sell-off crashed the UMAMI price by more than 60% and ultimately netted the CEO around $380,000 of USDC.

Amidst the sell-off, a team member tried to reassure users that "the team resigned" but that also, confusingly, the "treasury assets are safe and in control of the team".

According to the SEC, Kraken had failed to register its staking-as-a-service program, which had generated $147 million in revenue.

This is not Kraken's first run-in with authorities, after paying a $360,000 fine to OFAC in November for sanctions violations.

LocalBitcoins cited "the ongoing very cold crypto-winter" as the rationale for the closure, and stated that new sign-ups would be suspended immediately. Trading will be suspended a week later, and users will have a year to withdraw Bitcoins they stored on LocalBitcoins' wallet product.

Yuga Labs has said that, following the end of the three-week-long game tournament, the Sewer Passes with non-zero scores in the game will transform into something new, with the idea that higher scorers may receive more valuable NFTs.

This, of course, incentivized users to try to cheat in the game by creating bots, changing the browser-based game code to eliminate obstacles, or access game seeds that allowed them to predict the layout of a course run. Sewer Pass holders began paying others to play their game for them — either more skilled players, or players who were using these tools. Some were charging up to 2.5 ETH (~$4,200) to obtain scores of 700,000 or more for those who hired them.

Yuga Labs has promised to review gameplay to ensure that those who cheated are disqualified. They've also warned people buying Sewer Passes after gameplay ended that if they buy a pass that is determined to have cheated, it will be worthless. Some are skeptical of Yuga's ability to accurately detect cheaters, and others have expressed concern over false positives in the game's cheat detection that appeared to be caused by slower Internet connections.

Rothschild tried to argue that his work echoes Andy Warhol's Campbell's soup cans and other "brand art".

Hermès, on the other hand, argued that Rothschild was simply a "digital speculator" hawking a "get rich quick" scheme, and trying to profit off consumers' confusion that the NFTs were an official Hermès production. They claimed they have their own plans for NFTs, and that Rothschild impeded those with his project.

Ultimately, the jury found that Rothschild had infringed upon the Hermès trademark, and awarded the company $133,000 in damages.

"[Hermès] feel they have the right to choose what art IS and who IS an artist... Not because of what they create but because their CV doesn't scream artist with a pedigree from a world class art school," accused Rothschild after the decision, though he was not actually the designer of the images used in the NFT project.

The company disclosed liabilities between $100 million and $500 million, and assets between $50 million and $100 million. In a filing, they reported they had 5,001–10,000 creditors.

By far the largest creditor is Genesis, a crypto lending firm that is also undergoing bankruptcy proceedings. Coin Cloud has a $116 million loan from Genesis, around $108 million of which is unsecured. Coin Cloud also owes a $7.6 million secured debt to crypto lending firm Enigma.

According to Coin Cloud, contributing to their bankruptcy was a $35 million deal with a vendor who they allege sold them faulty ATMs in February 2021, and with whom they are in litigation. Furthermore, in September 2021, the firm providing Coin Cloud's ATM software tried to terminate their software agreement, and pushed a software update that rendered the machines inoperable, causing days- or weeks-long outages. Coin Cloud decided to deploy unfinished ATM software that they had been using internally, and which was quickly hacked for around $6.5 million. Finally, Coin Cloud claims a chief marketing officer they hired lied about his credentials, and then spent $20 million more than he was budgeted.

Trust Wallet published a thread about the theft, characterizing it as a social engineering scam perpetrated by an "organized crime unit from Rome". However, they didn't clearly address the claims about funds being stolen via a photograph of the Trust Wallet. Trust Wallet seemed to suggest they believed that the theft may have been perpetrated via malware transmitted in a PDF containing KYC information.

Webaverse described the incident as "undoubtedly a setback", but expressed belief that they would be able to continue operating.

This comes in the wake of various crypto exchanges — Binance included — appearing to have difficulties with banking. On January 21, Binance announced that users wouldn't be able to use SWIFT for transfers below $100,000 via Signature Bank. Meanwhile, Crypto.com's Lithuanian payment processor, Transactive, has faced a crackdown from the Lithuanian banking regulator leaving Crypto.com users without access to Euro-denominated deposits and withdrawals.

Scam sleuth CoffeeZilla dug into the project in a multipart YouTube series recently, drawing legal threats from Paul. After plenty of negative publicity, Paul withdrew the legal threats and promised to develop a refund plan for some of the funds that were invested, though it is a small fraction of the money lost in the project.

Rather than wait to see if Paul comes through with refunding only a small portion of their money, a group has formed a class action lawsuit against Paul and others who helped with the project. The lead plaintiff put a total of around $3,000 into the project altogether.

The suit accuses Paul and his team of a whole host of charges including fraud, breach of contract, unjust enrichment, deceptive trade practices, negligence, and fraudulent misrepresentation.

Orion Protocol CEO Alexey Koloskov wrote a Twitter thread confirming the attack, but claiming that although they weren't sure how the hack was perpetrated, it wasn't due to the fault of their own code. Koloskov wrote that he thought the issue "might have been caused by a vulnerability in mixing third-party libraries in one of the smart contracts used by our experimental and private brokers."

The attacker quickly bridged the tokens to the Ethereum chain and swapped them for ETH and USDC, collectively worth around $1.7 million. The price of ALBT plunged around 50%, and the BEUR Euro-pegged stablecoin significantly lost its peg.

Following the change, Bitcoin block sizes have reached all-time highs nearing 2.5 MB. Some are not thrilled that the size of the chain is ballooning with what they view to be junk data, given the whole thing needs to be recorded forever.

Longtime Bitcoin Core developer Luke Dashjr described Ordinals as a "spam attack" and an "attack on Bitcoin's fungibility", warning they would "break" the major Bitcoin-based projects Lightning and CoinJoin. He has argued that the miners should begin filtering the transactions as spam, which brought strong reactions from some in the community who pushed back that Bitcoin should be censorship resistant. "1) Bitcoin hasn't been censorship-resistant since mining centralisation. 2) Censorship resistance is about censorship, not fighting spam/attacks," he replied. Dashjr's fellow Core developer Adam Back also seemed unimpressed with the project, tweeting about Ordinals' "sheer waste and stupidity".

Ordinals are not the first Bitcoin-based NFTs, but they are the most recent and perhaps the most popular. On February 9, an "Ordinal Punk" — a Bitcoin-based homage to Ethereum's CryptoPunks — sold for 9.5 BTC (~$218,000).

Fans of creators including Felicia Day (actress and famous nerd), Brandon Powell (LA Rams wide receiver), and Portugal. The Man (rock band) may be disappointed, however, because Rally announced with under one day of notice that they would be shutting down. "This means that after today, the site will no longer be supported and you may experience a degradation in services or it may simply become inoperable. Additionally, since NFTs on the Rally sidechain are not transferable to mainnet, these will not be accessible once the site shuts down," they wrote in an email. The project also deleted its Twitter account.

The group behind the Rally Network had raised $57 million in funding in 2021, and was backed by VCs including Andreessen Horowitz.

In FTX's ongoing efforts to dig through the proverbial couch cushions in search of any funds that could be used to fill the gaping hole in its balance sheet, the firm has sued Voyager, a crypto broker that filed for bankruptcy in July, to try to recoup $446 million in funds that were "preferentially transferred" to Voyager when it filed for bankruptcy.

The lawsuit alleges that Voyager served as a "feeder fund" that "solicited retail investors and invested their money with little or no due diligence in cryptocurrency investment funds like Alameda and Three Arrows Capital".

Tesla sold most of its Bitcoin in Q2 2022, following the grand crypto tradition of buying high and selling low.

Now, according to SEC filings, Tesla suffered a net loss of $140 million in 2022 thanks to the gamble. Their reported $64 million in trading profits were eclipsed by their $204 million loss. Tesla still holds somewhere around 11,000 BTC.

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.

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.

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.

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.

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.

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.

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.