Nexo leaving the US, Alameda’s Portfolio revealed, Fighting Ethereum Censorship

1. Crypto lender Nexo is leaving its US business

The Facts:

• Crypto lender Nexo will cede its operations in eight US states after 18-months long negotiations with US regulators resulted in a “dead-end”.
• Nexo intends to shut down its US operations in orderly business, customer withdrawals are unaffected.
• The decision comes after previous talks with state and federal regulators refused to give clear guidance.
• Multiple regulatory bodies claim to be responsible for overseeing lending operations such as Nexo’s, including the Consumer Financial Protection Bureau (CFPB) and the Securities and Exchange Commission (SEC).

Why it’s important:

• Nexo’s decision to leave the US unveils once more the uneven regulatory landscape within the crypto industry.
• With multiple regulatory bodies claiming their prerogative to oversee crypto lenders and businesses, no clear path or guidance can be provided.
• Despite Nexo’s willingness and initiative to come to an agreement with regulators, a one-and-a-half-year period proved to be insufficient to lay out plans and settle an agreement for the path ahead.
• Authorities disputing who oversees respective regulation is a huge blockade for innovation and progress for the industry.
• Further inconsistencies in the approach to regulate crypto leaves industry players paralyzed, as no clear corporate strategy and framework can be developed and carried out.
• Not only will innovation be impaired, but lack of regulatory clarity also pushes innovation overseas and denies consumers access to services.
• Recent developments in the crypto industry are a major reason for the cautious and indecisive behavior of regulators.
• Regulatory inability to develop clear guidelines and directives for the crypto industry is causing consumer harm and enabling corporate scandals as seen in the near past.

2. Crypto hedge fund Alameda Research’s crypto portfolio revealed

The Facts:

• Crypto hedge fund and venture capital firm Alameda Research’s portfolio was recently revealed and uncovers the abstruseness of its ties within the crypto sector, and its parent company FTX.
• Alameda Research functioned as a venture capital investment hedge fund and trading arm and was responsible for FTX’s crypto industry investments.
• The recently released portfolio holdings of Alameda reveal a total investment of $5.4 billion within the crypto industry and beyond, with several high-stake investments to affiliate companies, exceeding $100 million.
• The most notable investments are Genesis Digital Assets ($1.15b), Anthropic ($500m), Modulo ($400m), Digital Assets DA ($ 320m), K5 ($300m), IEX ($270m) and Sequoia Capital($200m).
• Most investments represent equity of early-stage firms of disrupting industries such as fintech and digitalization, with further investments allocated to crypto tokens, especially in the DeFi sector.

Why it’s important:

• Direct insights into Alameda’s holdings reveal how FTX and Alameda were intertwined, shifting back and forth its holdings, with FTX even seizing part of Alameda’s holdings, once they received margin calls.
• Certain holdings such as Genesis and Anthropic are examples of major holdings that were listed on either company's balance sheet, reinforcing the willful blurring of balance sheets, and no clear separation between the different entities.
• Furthermore, FTX used part of Alameda’s holdings as collateral, attempting to secure new funding, once financial troubles started, exacerbating the financial health of both companies, to the detriment of its investors and customers eventually.
• Alameda Research made significant capital allocations to companies that FTX has partnerships with, or that invested their funds in FTX, most notably SkyBridge Capital, Sequoia Capital and Modulo, signaling serious conflicts of interest behind the capital allocation process.
• The investments were distributed across a total of 10 holding companies, and with most investments being illiquid, this adds to the precarious underlying setup of the company, a risk its investors and FTX users were unaware off at the time.
• With a total of $100 million in investments not being linkable to any corporate entity or type of investment being made, there is strong evidence for intentional fraud and embezzlement of investor’s funds.
• Overall the investment allocation and interconnectedness exhibits strong involvement of FTX’s business relations as well as conflicts of interest and cronyism behind the capital allocation process, misappropriating investors' and users' funds in the process.
• The implications on proper regulatory clarity and the ramifications of regulatory inaction in terms of crypto regulation is underlined once more, though the issue of corporate excess and empire building is not unique to the crypto industry at all, with countless examples from Traditional Finance in the past.

3. Ethereum’s MEV landscape expands with two new non-censoring relays

The Facts:

• Two new non-censoring relays, ultra sound and agnostic, joining the existing landscape of seven relays, of which four are censoring transactions.
• After “The Merge” of the Ethereum network transitioning from Proof-of-Work (PoW) to Proof-of-Stake (PoS), the Maximum Extractable Value (MEV), which allows blockchain validators to reorganize transactions in order to earn a profit, became a topic of controversies.
• The MEV relays are in a position to block and censor transactions on an individual basis, delaying inclusion for e.g. OFAC non-compliant transactions.
• The major wave of censorship compliant relays started with the US Office on Foreign Asset Control (OFAC) sanctioning Tornado Cash addresses, which subsequently lead the majority of Ethereum’s relays censoring blacklisted addresses.
• Four out of the previous eight relays are censoring, with the total dominance of censoring relays versus non-censoring relays being 87%, with Flashbots taking up 73% of all MEV Boost relays.
• Only two relays were entirely non-censoring until now, since two relays enforced partial censoring.

Why it’s important:

• Censorship in itself is against Ethereum’s ethos and core principles of a permissionless, credible neutral and therefore censorship resistance network.
• The new relays agnostic and ultrasound are the first that join the current minority of non-censoring relays in order to support the Ethereum network’s censorship resistance.
• Users having more censorship resistant relays to choose from is an important development in countering the trend and dominance of the MEV-Boost censoring relays.
• Currently, the extra time required for a transaction to be included and validated in a block is roughly 2 minutes instead of 12 seconds, due to the dominance of censoring relays.
• If the dominance of non-censoring relays were to drop to one third, the extra time required to be included in a block would be reduced to Ethereum’s block time of 12 seconds.
• Revisiting the very principles and ethos which cryptocurrencies, especially Bitcoin and Ethereum, it is evident that the future of crypto should not be one of permissioned, censored access to crypto assets, and crypto transactions.
• Though it is not impossible to transact on Ethereum with the prevalent dominance of censoring relays, it is already a costly and patronizing obstacle, that at its core represents a dangerous and regressive development, following the likes of measures of control and authoritarianism such as CBDC’s.
• Monetary and personal freedom should be fought for at all cost and therefore the novel relays are an important contribution.

In other news

• Strike enables lightning payments in 3 African countries (via TheBlock)
• Indonesia to introduce CBDC in 2023 (via Cryptoslate)
• New EU tax directly aimed at closing “crypto tax gaps” (via TheBlock)
• ByBit laying off 30% of its staff (via Coindesk)
• Bitcoin miners enlisted for power grid stability in winter (via CompassMining)
• Goldman Sachs looking to buy crypto firms (via Reuters)
• Tether launching Tether Gold on Huobi (via Tether)
• Terraform Labs liquidated UST prior to ecosystem crash (via Cryptoslate)
• Binance intends to buy Indonesian Tokocrypto (via TechInAsia
• Chainlink introducing staking for its oracle security (via Cointelegraph)

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