Cryptospace Spotlight 2022 #27 (3 Jul 2022)
North Korean hacking group is likely to be behind the $100M hack, EU finalised MiCA and toughen up travel rule requirement, and Three Arrows Capital sent shockwaves as it filed for bankruptcy!
Technology and Industry
Ethereum activated ‘Grey Glacier’ hard fork pushing back difficulty bomb by three months with ‘Merge’ likely to occur in September. [more]
Ethereum’s scheduled Grey Glacier hard fork went into effect on Thursday at 6:54 am ET — Block 15050000 to be precise — and caused no problems.
Polkadot's founder announces steps toward full decentralization with new governance model. [more]
Crypto investment firm Three Arrows Capital, also known as 3AC, filed for Chapter 15 bankruptcy [more][more-2][more-3]
While not unexpected, the news brings an ignominious end to the prominent, decade-old firm that managed as much as $10 billion in assets as recently as March, according to blockchain analytics platform Nansen.
Chapter 15 bankruptcy enables cooperation between international and U.S. court systems and is typically filed in an effort to protect debtor’s assets.
The firm borrowed large amounts of funds from several crypto lenders, including BlockFi, Celsius, Babel Finance and Voyager Digital, but was unable to pay.
The filing emerged hours after Voyager Digital suspended trading and withdrawals, citing unpaid loans to Three Arrows totalling $646 million. Voyager issued Three Arrows a notice of default on Monday.
Cryptocurrency market maker and lending firm Genesis Trading is facing potential losses into the “hundreds of millions”. The losses at Genesis relate, in part, to exposure to over-leveraged hedge fund Three Arrows Capital and Hong Kong-based crypto lender Babel Finance, and are on the order of “a few hundred million dollars,” one of the people said. [more]
On Wednesday, a court in the British Virgin Islands ordered the fund to liquidate due to an inability to pay off debt. And the Monetary Authority of Singapore reprimanded Three Arrows on Thursday for providing it with “false information” and being “misleading.”
Binance and FTX are actively looking to support struggling crypto companies. [more]
El Salvador buys 80 more BTC at a $19,000 price. [more]
Regulatory
European Union -
EU will require exchanges to identify most crypto transactions and the EU’s Transfer of Funds Regulation seeks to apply the same requirements on wire transfers to crypto with a no minimum threshold limit. [more]
Transactions from wallets that are not based on exchanges — what regulators call “unhosted” — will also be covered under the new rule when an individual interacts with wallets managed by CASPs. Peer-to-peer transfers between individual wallets will not be covered under the legislation.
Negotiators from the EU’s Economic and Monetary Affairs Committee had reached a deal on how crypto should be regulated in the bloc. [more][more-EU]
The latest update to the Markets in Crypto Assets (MiCA) bill will seek the implementation of supervisory provisions, consumer protections and environmental safeguards.
Non-fungible tokens (NFTs) offered to the public at a fixed price in the form of cinema tickets, digital collectibles from clothing brands or in-game items in computer games will be exempt from the scope of MiCA, though that could change later down the track.
United States -
Commodity Futures Trading Commission (CFTC) has filed civil charges against Cornelius Johannes Steynberg and his South Africa-based bitcoin pool operator Mirror Trading International Proprietary Limited (MTI) Thursday over $1.7B fraud and registration violations. [more]
The commodities watchdog accused MTI of promising to grow investors’ assets with a bot that didn’t exist.
Grayscale filed a petition for review with the US Court of Appeals for the District of Columbia Circuit Wednesday evening when the SEC rejected the conversion of its bitcoin trust (GBTC) to an ETF. [more]
Singapore - The central bank censures Three Arrows Capital for alleged misleading and false disclosures. The crypto hedge fund also exceeded the threshold of assets it could manage in Singapore. [more]
Japan - Financial Services Agency (FSA) is set to allow trust banks to manage cryptoassets later this year. [more]
Bank for International Settlements (BIS) - Basel Committee on Banking Supervision (BCBS) indicated that conventional banks should have a cap on their holdings of unbacked crypto assets to safeguard financial stability. In the consultation paper, it put out that the holdings of unbacked crypto like bitcoin and algorithmic stablecoins would be limited to 1% of a lender’s capital under the standard setter's new plans. [more][more-BCBS]
The Committee invites submissions on the proposals by 30 September and aims to finalise the standard around the year-end.
Security and Risk
26 Jun - XCarnival was exploited by an attacker due to a contract vulnerability. Attacker managed to drain off 3,087 ETH from the protocol. [more][more-XCarnival]
The hacker is made possible by allowing a withdrawn pledged NFT to be still used as the collateral, which is then exploited by the hacker to drain assets from the pool.
The overall logic is that the hacker first generates multiple contract addresses, then goes to call the XNFT contract, pledges the NFT, then generates an orderld, then withdraws the NFT, multiple times this operation, then calls the XToken contract’s borrow() through the previous contract address as well as the orderld In the call to borrow(), there is no judgment that the NFT has been withdrawn, so the hacker borrowed and then did not pay it back, then keeps repeating this operation.
After multiple rounds of negotiations with attackers over redemption of assets. At 13:45(UTC+8) June 27, the attacker returned 1,467 ETH upfront.
30 Jun - OpenSea, the popular NFT marketplace, is warning users of email phishing after a data breach.
A staff member at Customer.io, an email vendor contracted by OpenSea, misused their employee access to download and share email addresses of OpenSea’s users and newsletter subscribers with an unauthorized external party.
The scale of the security breach appears massive. “If you have shared your email with OpenSea in the past, you should assume you were impacted,” the company said, adding that it’s working with Customer.io in an ongoing investigation and has reported the incident to law enforcement.
Harmony’s Horizon Bridge Hack update - North Korean hacking group is likely to be behind the $100M hack. [more]
Blockchain analytics firm Elliptic has traced the hack back to the Lazarus Group, a state-sponsored North Korean hacking organization.
The attack drained the service, which enables crypto assets to be traded between the Harmony blockchain and other blockchains, of $100 million worth of crypto, including ether (ETH), tether (USDT) and wrapped bitcoin (wBTC) on the morning of June 24.
According to Elliptic, the attackers converted the stolen assets to 85,837 ETH following the hack and, beginning on June 27, began to send some of the ETH through Tornado Cash, a mixer commonly used to launder illegally obtained crypto. So far, approximately 35,000 ETH – 41% of the total funds stolen – have been sent to Tornado Cash.
Coffee-chat
Is this crypto crash different?
But this time really is different. Driven by war and pandemic, a new macroeconomic paradigm is forming. High inflation is back after a 30-year absence, and with it, much tighter monetary policy. Interest rates are rising, and central banks around the world are burning money. The era of plentiful dollars is coming to an end. And that will mean persistently lower prices for cryptocurrencies. [more]