Venture capitalists are the lifeblood of crypto, and luckily for founders, some of the top crypto VCs say their assets rose sharply last year from the year before, according to filings with the Securities and Exchange Commission.

The increases came along with a rise in the broader crypto market.

Multicoin Capital, a venture-capital fund with close ties to Solana, saw its assets’ value jump almost 180%, to $3.81 billion in 2023 from about $1.36 billion in 2022.

Polychain Capital, which was founded by former Coinbase employee Olaf Carlson-Wee, saw its fund’s value almost double, to $5.04 billion in 2023 from $2.61 billion the year before.

And Blockchain Capital, which announced in September 2023 that it had raised another $580 million for more crypto investments, said the value of its assets under management increased to $2.36 billion from almost $1.74 billion.

Others that saw smaller increases include Paradigm, which saw its fund’s value surpass $10 billion; Haun Ventures, which valued its assets at more than $1.5 billion; and Andreessen Horowitz, whose massive fund, which counts crypto among its investments, was worth $56 billion at the end of 2023.

Representatives for five of the venture-capital firms mentioned above didn’t immediately respond to a request for comment from DL News, and a spokesperson for Multicoin declined to comment.

Crypto investments creep back

The rebound in the fortunes of the biggest crypto VCs mirrors the revival of the broader crypto market.

In 2022, top crypto investors said their assets under management were substantially lower than they were in 2021, according to Newcomer.

Paradigm marked down its portfolio 34%, and Multicoin said its assets fell 85% in value.

And the total value in crypto raises dropped to a monthly low of a little less than $300 million in July 2023 from more than $7 billion in October 2021, according to data from DefiLlama.

More than a year and a half later, crypto is back in business.

Bitcoin reached an all-time high of more than $71,000 in March, per CoinGecko, and crypto VCs invested about $1 billion in the industry in February.

More recently, however, VC enthusiasm has trailed off, with May only recording about $200 million in raises.

And, despite renewed optimism for the industry, some crypto VCs still haven’t recovered to the heights of the last bull market.

In 2021, Paradigm said its assets under management were $13.2 billion, and in 2022, it said it employed 73 staff members. Now it has only 59 employees.

A hacker used a massive “flash loan” to drain $20 million from UwU Lend, the crypto lending protocol founded by Michael Patryn, an internet entrepreneur who operated QuadrigaCX, a Canadian crypto exchange that collapsed in 2018 because of fraud.

At UwU, Patryn, who is better known by his pseudonym 0xSifu, has offered the hacker a deal: Return about $16 million in crypto and we’ll drop any potential charges.

“We are offering a 20% white hat bounty of any funds taken,” Patryn wrote in a message sent on Ethereum. “You will face no risk of us pursuing this further and no risk of law enforcement issues.”

The ploy is standard operating procedure in crypto, where identifying hackers and retrieving stolen tokens is a time-consuming ordeal. But it’s often ignored by hackers, with a few notable exceptions.

Launched in 2022, UwU Lend is a clone of lending protocol Aave, which was the second-largest protocol in decentralised finance as of Monday with more than $20 billion in user deposits.

But a key change allowed the hacker to drain the protocol in a series of transactions early Monday, according to crypto security firm Blocksec: the use of easily manipulated price “oracles,” which provide UwU with the price of various tokens.

Along with a multibillion-dollar flash loan — perhaps as large as $4 billion, according to Matthew Jiang, director of security services at Blocksec — the hacker was able to syphon about $20 million from UwU.

“The attacker flash loaned a huge amount of assets,” Jiang told DL News. “He almost borrowed all the assets on the chain that can be flash loaned.”

On X, UwU developers said they had paused the protocol while they investigate the hack. UwU didn’t immediately return DL News’ request for comment on Monday.

Flash loans

Flash loans allow zero-collateral borrowing that must be repaid within the same transaction on the blockchain. Traders leverage these loans for arbitrage trading.

But malicious actors can also use flash loans to syphon liquidity from DeFi protocols. The loans provide the capital needed to take advantage of vulnerabilities within a protocol’s code.

Last year, Ethereum lending protocol Euler Finance initially lost $197 million in a flash loan attack, although the hacker later returned 85% of the stolen crypto.

Other recent flash loan exploits include last month’s $20 million hack of Sonne Finance and the $44 million hack of Hedgey in April.

In the first five months of the year, hackers stole an estimated $560 million from DeFi protocols — a 32% increase from the same period a year prior, according to DefiLlama data.

Patryn was a co-founder of QuadrigaCX, which collapsed because of fraud committed by co-founder Gary Cotten, according to the Ontario Securities Exchange.

The exchange collapsed two years after Patryn had left it. Patryn later became — under his 0xSifu pseudonym – the treasury manager for Wonderland, a popular DeFi protocol. That protocol’s token crashed in January 2022 after Patryn’s identity was revealed.

Aleks Gilbert is a DeFi Correspondent at DL News. Got a tip? Email him at aleks@dlnews.com.

Robinhood says its $200 million purchase of Bitstamp is part of a plan to broaden its crypto business to institutional investors.

Experts say it’s more than that. It’s also taking a strong stand against the US Securities Exchange Commission.

“It’s an indication that the industry feels that the political winds are shifting in Washington,” Sean Tuffy, a former regulation banker with Citigroup, told DL News.

“Firms are increasingly confident that the SEC’s anti-crypto campaign is running out of steam and are willing to continue to expand its offerings.”

Robinhood bought Bitstamp just weeks after the online brokerage disclosed that the SEC had recommended proceeding with an enforcement action against the company over its crypto business.

Instead of baulking at the SEC notice, Robinhood is committing even more resources to crypto, suggesting that the SEC is losing some of its influence over the industry.

Legal battle

The move comes as SEC Chair Gary Genler suffers defeat after defeat in his legal battle against crypto players. Where they once shook in fear, executives now shrug.

“Many crypto companies view the SEC as profoundly evil at this point and not only don’t take them seriously, but see them as an active obstacle to protecting their customers,” Austin Campbell, professor at Columbia Business School and founder of Zero Knowledge Consulting, told DL News.

Robinhood will now attempt a tried-and-true industry strategy: turning to the courts for clarity.

A key court win for Grayscale in 2023, for example, spurred the SEC to review its Bitcoin ETF application, paving the way for a slew of ETF approvals in January.

Gautam Chhugani, a Bernstein analyst, said Robinhood is pursuing a similar strategy for listing tokens on exchanges.

“Robinhood is willing to fight the SEC in the court,” Chhugani told DL News. “That’s the opportunity, right? The fact that they will seek regulatory clarity through the court process.”

With most of Bitstamp’s revenue coming from Europe, buying the crypto exchange is also a serious bet on international expansion far beyond the SEC’s jurisdiction.

The deal is expected to close in the first half of 2025.

Liam Kelly is a Berlin-based DL News’ correspondent. Contact him at liam@dlnews.com.

A version of this story appeared in our The Guidance newsletter on June 10. Sign up here.

Don’t look now, but Congress is softening on crypto.

Even Democratic Party lawmakers are rethinking their longstanding antipathy to the industry.

At least, that’s the narrative in press coverage and op eds as crypto emerges as a surprise election issue.

But there’s not much evidence to show a sea change is truly in the works.

Good signs? Yes, but the new, favourable policies crypto has long desired remain a big unknown.

Crypto pundits have pointed to Congress’ bipartisan vote to scrap a policy called SAB 121 as proof of increasing support for the crypto industry.

That’s particularly exciting when it comes to the Senate, where crypto’s hold is considered tenuous.

More can be found on SAB 121 here. But essentially, it’s regulatory guidance that is blocking big banks like JPMorgan Chase, BNY Mellon, and State Street from muscling into the crypto custody business.

Wall Street wins

But it’s one thing to support SAB 121, and quite another to support crypto.

Firstly, the bill to repeal SAB 121 is not really a crypto bill.

If SAB 121 were scrapped, the big winners would be Wall Street giants.

The banking lobby has made it clear it wants SAB 121 gone, especially since the approval of spot Bitcoin exchange-traded funds in January.

It is pretty funny that the House vote to repeal SAB 121 is being pitched as a crypto win. In reality, it’s basically a move to help custody banks, which couldn’t get more TradFi if they tried.

— Sean Tuffy (@SMTuffy) May 9, 2024

Congress is happy to give Wall Street what it wants, especially when it’s asking for something that will benefit consumers.

Which brings me to my second point: pretty much everyone from pro-crypto lobbyists to hardcore sceptics thinks that SAB 121 is misguided

Sure, President Joe Biden vetoed the repeal.

But outside of a small Democratic coterie, you won’t find many arguments against allowing heavily-regulated, experienced banks to safeguard crypto assets.

So to sum up — even broadly anti-crypto Senators may see an upside in handing the industry over to their friends in the powerful big banking lobby.

A quick look at the votes on the SAB 121 bill backs up my opinion.

Democratic Senators Gary Peters, Mark Kelly, and Jon Tester all voted to get rid of SAB 121.

Peters and Kelly signed on to crypto arch-sceptic Elizabeth Warren’s anti-crypto bill, while Tester once said of crypto that it was “all bullshit.”

What about the House of Representatives?

Pundits point to the passing of the FIT21 Act in May as evidence of support in the lower chamber of Congress.

But DC insiders say the support in the House may have been there all along — it’s just that its measure was never taken before, as this was the first time that the House has voted on a standalone crypto bill.

It’s natural that the crypto industry wants softer treatment after almost four years of a sceptical administration.

But Congress isn’t fully on board yet.

Reach out to joanna@dlnews.com.

In the latest sign that crypto hackers are exploiting private keys, Lykke, a UK-based crypto exchange, shut down trading on June 6, citing “unauthorised access” to its platform.

The closure came two days after the exchange was hacked, according to SomaXBT, a web researcher, who first reported the incident.

The exchange has sustained $22 million in suspicious outflows, said Taylor Monahan, a MetaMask developer and crypto defence expert.

Unable to withdraw

Lykke recorded $2.5 million in cumulative volume in the last month. Its users are currently unable to withdraw their assets from the platform with several of them stating their account balances have been emptied ― another sign the exchange may have been hacked.

Half of the sum was in Bitcoin, and the rest was a mix of Ether, Litecoin, and Bitcoin Cash, according to onchain data.

Onchain data also shows the Ether withdrawn from the exchange was immediately swapped to the DAI stablecoin, which MakerDAO issues.

At the same time, the stolen Bitcoin has been divided among several wallets — a common tactic hackers employ to obscure the transaction trail when they try to launder the stolen funds.

The exchange has largely been mum about the incident. On June 6, b Lykke CEO Richard Olsen apologised for the platform’s downtime in an email sent to customers.

Security incident

“We are still investigating the causes of this security incident,” Olsen said in the email seen by DL News.

“In the meantime, you can rest assured that your funds are safe,” Olsen said. “Lykke is a diversified business with strong capital reserves.”

The exchange’s website currently displays a message saying the platform is “under maintenance following security” and will remain “inactive under further notice.”

Lykke did not immediately respond to DL News’ requests for comment.

Lykke is the second crypto exchange to be hacked in the last two weeks after DMM Bitcoin saw $320 million stolen from its platform on May 31.

Private key leakage

With 2024 almost halfway done, crypto theft this year has crossed $582 million, DefiLlama data shows.

That figure exceeds the $433 million recorded in the first half of last year.

Most of the biggest hacks this year have been due to private key leakage ― a security problem identified by cybersecurity outfit Cyvers as a potential major concern for crypto companies.

Private keys function like passwords and they control access to crypto wallets. If hackers gain control of a crypto company’s private keys, they can syphon all the funds it keeps in the affected wallets.

Last year, Cyvers’ research revealed that 85% of the $900 million stolen from exchanges, bridges and DeFi protocols in the latter half of the year were due to private key leakage.

Cyvers co-founder Meir Dolev previously told DL News the problem could become more endemic to crypto if industry participants did not adopt safety measures.

The DMM Bitcoin hack, this year’s largest crypto theft to date, has been attributed to private key leakage.

Onchain sleuths say Lykke’s security breach bears similar hallmarks.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.

Bitcoin wobbled again on Monday, following the euro and risk assets lower amid gains by far-right parties in European Parliament elections.

French President Emmanuel Macron called a snap national election, adding to the political uncertainty.

“The market is seeing political risk premia from these election results,” Neil Wilson, chief analyst at Markets.com, said in a note to clients.

“There are also questions about support for Ukraine, and lots else. You can see why market reaction is to kneejerk down.”

Bitcoin slumped on Friday after non-farm payrolls in May beat analysts’ estimates, adding 272,000 new jobs. The report dampened expectations that the Federal Reserve will cut rates this year.

“Risk sentiment was always going to be a bit soft after the nonfarm payrolls on Friday,” Wilson said.

Lower interest rates are typically bullish for risk assets like stocks and cryptocurrencies.

Wednesday will see crucial US inflation data along with a Fed policy meeting that may flag whether a rate cut is on the cards.

Higher-than-expected inflation data reduces the likelihood of a rate cut, adding to Bitcoin’s woes.

But some believe a Fed pivot is already a done deal.

BitMEX co-founder Arthur Hayes last week pointed to rate cuts from the Bank of Canada and the European Central Bank as a sign monetary policy in the US will soon loosen.

“The trend is clear,” Hayes said. “The crypto bull is reawakening, and is about to gore the hides of profligate central bankers.”

Crypto market movers:

Bitcoin is down 0.4% over the past 24 hours to $69,302.

Ethereum is down 0.6% to $3,669.

What we are reading:

Wife of Binance exec ‘expected a lot more’ from US as husband languishes in Nigerian prison — DL News

New York Attorney General Sues Promoters Over $1B Crypto Pyramid Schemes — Milk Road

Loopring’s ‘Guardian’ Smart Wallets Hacked for $5 Million — Unchained

Crypto Funds See $2B Inflows; Bitcoin Remains Primary Focus — Milk Road

AI use in crypto scams not yet mainstream, but increasing, Elliptic report says — DL News

Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.

Artificial Intelligence (AI), while in its infancy as a technology, is already being harnessed for criminal acts in the crypto space, according to a report from British blockchain analytics firm Elliptic.

While AI-enhanced crypto crime may not yet be a mainstream threat, identifying emerging trends is important for sustainable innovation, the report said.

Crypto investment scams have recently made use of deepfakes of celebrities and authority figures to promote themselves.

Among others, video images of Elon Musk and former Singaporean Prime Minister Lee Hsien Loong have been used in such scams.

DL News reported earlier this month that an ad on social media featuring video of Lee hawking crypto investments was a deepfake that layered bogus audio over video of a speech he made earlier this year.

“This is extremely worrying: People watching the video may be fooled into thinking that I really said those words,” Lee said in a Facebook post. “The video is not real!”

AI is also a hype-generator for scam tokens, the Elliptic report said.

For example, there are hundreds of tokens listed on blockchains that have some variant of the term “GPT” in their name. Some may be the product of legitimate ventures, but Elliptic said it has identified numerous scams among them.

Threat actors

The report noted there is debate over whether AI tools can be used for code auditing and bug-checking, and whether black hat hackers may use those capabilities to identify and devise hacks.

Though Microsoft and OpenAI have reported instances of Russian and North Korean threat actors engaging in such attempts, others suggest their technology is not yet fully developed, according to the Elliptic report.

Norway returned almost $6 million in stolen crypto from the $620 million hack of the online game “Axie Infinity” in 2022, according to a post on X by Sky Mavis, the blockchain company behind the game.

Sky Mavis thanked the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime for freezing, recovering and returning $5.7 million in stolen assets.

It also expressed gratitude to the FBI in the US for its “tireless effort to track down and recover these assets.”

When the “Axie Infinity” launched in 2020, it pioneered the concept of play-to-earn, an idea that people could earn money playing video games, DL News has reported.

For those in developing countries, playing the game could earn them more than local minimum wages. It attracted millions of players, some of whom made their livings from the game. At its height, the game became a cultural phenomenon.

Then in early 2022, the game’s tokens lost most of their value amid a larger crypto collapse, the number of daily players dwindled, and the chain it was built on, called Ronin, was hacked by North Koreans in one of the biggest cyber-heists ever.

Recovered assets

“About 15% of recovered assets will be used to cover costs and expenses incurred by those involved in the recovery efforts,” including blockchain forensic firm Chainalysis, lawyers and accountants, Sky Mavis wrote in the post.

The remaining 85% of recovered funds will be deposited into the “Axie Infinity” treasury.

The company added as a reminder that about $40 million in separate assets have been frozen by the law enforcement authorities, though the timing of their recovery is uncertain.

Binance, the world’s biggest crypto exchange, said in a post on X that it had reached 200 million global users, despite a leadership change, paying a record fine to US regulators, and other more recent issues.

At the end of 2023, the exchange said it had added 40 million users to bring its total to 170 million, which means that it has gained about 30 million in the first half of this year. “Your support is the heartbeat of our journey to 1 billion users,” the celebratory post said.

“In 2023, reaching settlements with U.S. regulators, we took responsibility for our past conduct and opened a new chapter in Binance’s history. ... The scrutiny has helped create the comprehensive compliance program we have today,” the company said in a year-end blog post.

In November, Binance pleaded guilty to anti-money laundering violations, unlicensed money transmitting, and sanctions violations and paid $4.3 billion in fines and restitution. It was one of the largest payments the Justice Department had ever received from a corporation, Attorney General Merrick Garland said at the time.

DL News reported that founder Changpeng Zhao struck a deal with prosecutors. He agreed to step down from his position as CEO, plead guilty to violating the Bank Secrecy Act, and pay a $50 million fine. He is now serving a four-month sentence at a low-security prison in California.

Zhao’s successor, CEO Richard Teng, pledged a new era of compliance was dawning for the exchange, but he has had to deal with lingering problems.

In March, officials in the Philippines blocked Binance after the exchange failed to obtain a licence following months of warnings.

Then Nigeria’s anti-corruption agency charged Binance with money laundering and tax evasion, charging two Binance executives with the same allegations and even imprisoning one.

Still, the value of funds that Binance holds on behalf of its users exceeded $100 billion in March, according to a company blog post.

Crypto market movers

Bitcoin is down 0.26% today at $67,331.87.

Ethereum is down 0.42% today at $3,688.62.

What we are reading

Iggy Azalea is cashing in on crypto, as her ‘memecoin’ makes $194 million in one week — Fortune

I signed up for Binance, Coinbase, and Kraken in Hong Kong — why this shouldn’t have happened — DL News

Robinhood crypto head says Bitstamp will help lure wealthy investors — DL News

Bitcoin miner Core Scientific rejected an all-cash buyout offer of more than $1 billion from cloud computing company CoreWeave, saying in a news release that the offer significantly undervalued it.

Core Scientific, one of the biggest owners and operators of high-powered digital infrastructure for Bitcoin mining and hosting services in North America, said it had received an unsolicited non-binding proposal from CoreWeave to acquire all of its outstanding shares on a fully diluted basis for $5.75 per share in cash.

This unsolicited proposal immediately followed Core Scientific and CoreWeave entering into a separate series of 12-year contracts for Core Scientific to provide about 200 MW of infrastructure to host CoreWeave’s high-performance computing services.

Core Scientific’s board consulted with independent advisers in reviewing CoreWeave’s proposal and evaluating the company’s growth prospects and near- and long-term value creation potential.

Shareholder interests

It determined that the proposal significantly undervalued Core Scientific and was not in the best interests of its shareholders.

Core Scientific emerged from Chapter 11 bankruptcy earlier this year.

The US Attorney’s Office for the Southern District of New York said in a statement it has charged three UK nationals in connection with a 2021 rug-pull scam involving a collection of 10,000 NFTs called ‘Evolved Apes.’

Mohamed-Amin Atcha, Mohamed Rilaz Waleedh, and Daood Hassan, all 23, were charged with wire fraud and money laundering, according to the statement. Each count carries a maximum prison sentence of 20 years.

According to the indictment, the three executed a type of scam commonly known as a “rug pull,” where developers advertise a digital project, collect funds from purchasers, then abandon the project and keep the funds — in this case, 798 Ethereum worth about $2.7 million at the time.

US Attorney Damian Williams said that “the defendants ran a scam to drive up the price of digital artwork through false promises about developing a video game. They allegedly took investor funds, never developed the game, and pocketed the proceeds.”

Williams added: “Digital art may be new, but old rules still apply: Making false promises for money is illegal. As we allege, thousands of people believed these false promises and were tricked into buying these NFTs, including here in the Southern District of New York.”

The statement alleged that the three had laundered the misappropriated funds through multiple cryptocurrency transactions to their own personal accounts.

DL News reported earlier that last year, rug pulls and related scams totalled about $760 million, according to data from blockchain security firm Quantstamp

Donald Trump said he would be a “crypto president,” while criticising Democrats’ regulation of the industry during an exclusive San Francisco fundraiser that netted him $12 million, Reuters reported, citing three sources who were present.

Venture capitalists David Sacks and Chamath Palihapitiya hosted the event at Sacks’ home in the ritzy Pacific Heights neighbourhood, the report said.

“He said he would be the crypto president,” Trevor Traina, a tech executive and former Trump ambassador to Austria, told Reuters.

San Francisco may be a bastion of political liberalism, but many local venture capitalists and crypto investors are backing Trump, citing excessive regulation under the administration of President Joe Biden, according to the report.

Crypto has emerged as a hot-button election issue as the industry has amassed an $85 million warchest to sway voters before the November election, DL News has reported.

Republican National Committeewoman Harmeet Dhillon told Reuters that Trump had offered no specific policy proposals for the crypto industry.

Dhillon added that Coinbase execs, Tyler and Cameron Winklevoss, and other crypto leaders attended the event.

Biden’s White House has said it wants to work with Congress on a regulatory framework for crypto.

Spokesperson Robyn Patterson told Reuters in a statement that the Biden administration supports crypto innovation as well as protection against the “risks associated with new technologies.”

Crypto market movers

Bitcoin is down 2.58% today at $69,411.91.

Ethereum is down 3.40% today at $3,692.41.

What we are reading

Wife of Binance exec ‘expected a lot more’ from US as husband languishes in Nigerian prison — DL News

Bitcoin falls below US$70,000 after US jobs data and ECB rate cut — Forkast News

I watched hackers drain $45,000 from my wallets — what I did wrong and what crypto must get right — DL News

On the eve of an early morning flight to Nigeria’s capital, Abuja, Binance executive Tigran Gambaryan had a choice to make.

A small carry-on or a large suitcase?

“He was like, ‘I don’t need a bigger suitcase, right?” Yuki Gambaryan, his wife, recalled in an interview Thursday. “‘Because I’m gonna be there only for two days.’”

That was in February. Now, more than three months later, Gambaryan is still in Nigeria and enduring an ordeal neither he, his family, friends, or colleagues could ever have imagined.

As he languishes in prison on what his lawyer says are bogus money-laundering charges, Yuki is frustrated Washington hasn’t done more to help her husband. A former investigative agent for the Internal Revenue Service, Tigran is Binance’s head of financial crime compliance.

“I am shocked at how long it took for us to get to this point,” she told DL News in an exclusive video interview. “It feels like the US government just got to the starting line now, which should have happened a long time ago.”

On Tigran’s second day in Nigeria, officials seized his passport and installed him in a “guest house” where he was kept under guard. On his fourth day, they obtained a court’s permission to keep him there for two weeks.

About four weeks later, officials took Tigran’s phone, and the government’s anti-corruption ministry and tax agency charged him with facilitating money laundering and tax evasion.

‘I didn’t get up to say goodbye or wish him a safe tri. And I regret it. Every single day.’

Yuki Gambaryan

They moved him to a detention facility in the basement of a government building.

After six weeks in Nigeria, Tigran was transferred to a medium-security prison that incarcerated Boko Haram and Islamic State terrorists.

Hostage taking

In the ensuing weeks, he would be denied bail and, potentially suffering from malaria, faint on the first day of his trial in May.

Tigran’s Nigerian attorney has called his arrest “state-sanctioned hostage taking.”

Even though a judge ordered prison officials to transfer Tigran to a hospital, Yuki told DL News he has been denied care. His trial was postponed until June 20.

In the meantime, Tigran has missed his son’s fifth birthday and pre-kindergarten graduation. He turned 40 in prison. On Saturday, he and Yuki, a 37-year-old translator of Japanese, would have celebrated their 15th wedding anniversary.

“All he did was go into a meeting — that’s all he did,” she said in disbelief. “And now he’s sitting in prison. … That just cannot be happening.”

An urgent trip

The ordeal began in February when Tigran and his colleague Nadeem Anjarwalla, Binance’s Kenya-based regional manager, flew to Abuja to meet with Nigerian officials.

After Nigeria’s currency, the naira, collapsed at the beginning of the year, the government was pointing the finger at Binance.

They said the crypto exchange, which was operating without a licence in Africa’s most populous nation, was facilitating manipulation of the currency as well as illicit financial transactions. Binance denies the allegations.

It fell to Gambaryan and Anjarwalla to assuage the Nigerians’ anger. And the situation was urgent.

“Usually when he travels internationally, it starts to get organised maybe two weeks, three weeks prior, but that was not the case,” Yuki said. “It just came up out of nowhere.”

She expressed her concerns. But Tigran was calm. In any case, he had no choice but to go, he told Yuki.

Around 4 am on the day of his flight, she heard him walking around their Atlanta-area home making last minute preparations.

“I didn’t get up to say goodbye or wish him a safe trip, which I usually do,” she said, her voice breaking. “But I just didn’t do it, because it was just so early in the morning. And I regret it. Every single day.”

‘That’s the sacrifice he made for the country, for the government. So I expected a lot more.’

Yuki Gambaryan

When he arrived in Abuja on February 25, he texted Yuki to let her know he’d checked into his hotel.

She wouldn’t hear from or about him for another 30 hours. When she got a call from a family friend who also works at Binance, she was calm. He told her Tigran had been detained.

“When I actually heard it, I basically felt, like, ‘OK, I saw that coming,” she said.

She kept her composure until February 27. Then she received a call from the US embassy in Nigeria and an official there confirmed his arrest.

“That’s when I started freaking out in earnest,” she said.

‘Coercion tactic’

Yuki began reaching out to her state and congressional representatives and government officials.

Her efforts have borne fruit: On Wednesday, Rich McCormick, the Republican who represents the Gambaryans’ Georgia House district, and 15 of his colleagues implored the White House to help get Tigran released.

“Mr. Gambaryan’s detainment has been marked by excessive and harsh treatment,” they wrote in a letter to President Joe Biden and other officials.

“It is crucial to emphasise that the charges against Mr. Gambaryan are baseless and constitute a coercion tactic by the Nigerian government to extort his employer, Binance.”

US lawmakers want the Biden Administration to send a special envoy to Nigeria to negotiate his release. More than a hundred former federal prosecutors and agents echoed that demand in their own letter to Secretary of State Antony Blinken.

Yuki said she was very grateful for the lawmakers’ letter, but added that she expected a swifter response from the US government, especially given Tigran’s tenure at the IRS.

During his 10-year employment at the agency, Tigran was involved in some of the government’s most high-profile investigations and often worked well past midnight, Yuki said.

He would spend as much as half the year travelling for work, leaving Yuki to raise their two kids.

“That’s the sacrifice he made for the country, for the government,” she said. “So I expected a lot more.”

Working around-the-clock

As for Binance, the company insists he had no decision-making authority at the company and has urged the Nigerian government to understand holding him is unfair.

Binance has told Yuki it’s working around-the-clock to bring him home.

“They keep telling me there is this huge group of people within the company who have been working on this case day and night,” she said. “If that’s true, how is it possible that he’s not home yet? It’s been three months.”

‘Inconsolable’

In the days immediately after his arrest, Tigran was detained in a government-owned residence where he was provided freshly made smoothies each morning and allowed to use his phone, DL News previously reported.

Two weeks after Anjarwalla’s stunning, Hollywood-esque escape from Nigerian custody on March 22, however, Tigran was transferred to the notorious Kuje Prison.

Since then, Yuki has received updates from Binance and Tigran’s attorneys in Nigeria, but she has only spoken to him twice: last week and the week prior. Each call lasted about two minutes, and was monitored by a prison guard.

“We just basically asked each other how are you doing, how are you, physically? I miss you, I love you, stay strong,” she said.

“He sounded fine. He always sounds fine. That’s what he does for the sake of me, so I don’t have to worry about him.”

But his tenor masked the fact he’d fallen gravely ill. In addition to a chest infection, a spokesperson for Yuki told DL News he appears to have contracted malaria, a potentially deadly, mosquito-borne infection common in West Africa.

“We have yet to see a single test result, however he had all the symptoms,” the spokesperson said. Normally fit, Tigran has looked gaunt and stressed in his court appearances.

Tigran’s mother, who ‘basically raised him all by herself,’ is ‘inconsolable,’ Yuki said.

After his courtroom collapse on May 23, a judge ordered that officials take him to a hospital to receive treatment.

It doesn’t appear they have complied — after about three hours and “some tests,” he was sent back to Kuje, according to Yuki. Nigerian officials have not shared the results of those tests with her.

Tigran’s mother, who “basically raised him all by herself,” is “inconsolable,” Yuki said. “I don’t even know how to describe her state.”

Something’s wrong

She has yet to tell their children that Tigran has been arrested.

Accustomed to their father’s frequent travelling, their five-year-old son is none the wiser, she said. But their 10-year-old daughter is more circumspect.

“She can tell something’s wrong,” Yuki said.

When her daughter first asked why Tigran had been gone so long, Yuki said, vaguely, that he was dealing with “things.” A few days later, her daughter asked, “what exactly are those things that he has to deal with?”

“I told her the company he works for is having an issue with another country,” Yuki said. “And it’s taking a long time to resolve it.”

With reporting by Osato Avan-Nomayo in Lagos.

Aleks Gilbert is a DeFi Correspondent at DL News. Got a tip? Email him at aleks@dlnews.com.

Almost a dozen firms are competing to launch spot Ethereum exchange-traded funds. But crypto heavyweight ARK Invest isn’t one of them.

“ARK believes in its transformative potential and the long-term value of the Ethereum blockchain, but, at this time, ARK will not be moving forward with an Ethereum ETF,” an ARK spokesperson told DL News.

ARK Invest issued a spot Bitcoin ETF in January alongside 21Shares, a firm that specialises in launching crypto investment products. And the two firms seemed ready for another round, filing for an Ethereum ETF jointly.

No surprise there: The massive success of the Bitcoin ETFs suggests Ethereum ETFs could quickly accumulate billions of dollars in assets with even a fraction of the demand.

But a recent filing showed that ARK has dropped out of the partnership and that 21Shares will pursue a spot Ethereum ETF on its own.

Expensive products

There are a couple reasons why ARK may have changed its mind.

For one, launching an ETF is expensive — and in the case of the spot Bitcoin and Ethereum ETFs, the fees are so low that issuers don’t always make a profit.

“Although Bitcoin ETFs have done well in terms of assets, the issuers face profitability challenges due to fee compression and the relatively high costs of the crypto-related fund service providers,” Will Cai, managing director of indices of Kaiko, a crypto research firm, told DL News.

ARK and 21Shares’ Bitcoin ETF is one of the most successful funds out of the 10 that launched in January. Coming in third behind BlackRock and Fidelity, it has vacuumed up almost $3.5 billion in assets in five months — an impressive performance by normal ETF standards.

Even so, with fees at 0.21%, it may be hard for ARK and 21Shares to break even on the product. They still must pay their Bitcoin custodian — in this case, Coinbase — as well as administrative fees, their cash custodian, and other things like transfer agents.

“This could well put pressure on the terms of the partnership when there isn’t much profit to go around,” Cai said.

Waiting for staking

There’s also the possibility that ARK is waiting for the Securities and Exchange Commission to greenlight spot Ethereum ETFs that also provide staking services.

“We will continue evaluating efficient ways to provide our investors with exposure to this innovative technology in a way that unlocks its full benefits,” the ARK spokesperson told DL News.

In their current design, the ETFs will provide pure exposure only to Ether’s price, without the roughly 3% yield that investors can earn by staking their Ether.

In other words, not only will investors have to pay a fee to ETF issuers for the exposure to Ether, they will be missing out on opportunities to grow their holdings in Ether terms.

“There’s one massive idiosyncratic factor with ETH that will affect demand and that’s staking,” Adam Morgan McCarthy, a Kaiko analyst, told DL News.

“Even paying 0.20% fees without the staking element seems like a nonstarter to me,” he added.

Tom Carreras is a markets correspondent at DL News. Got a tip about ARK or Ethereum ETFs? Reach out at tcarreras@dlnews.com

President Joe Biden’s veto of a bill that would scrap an obscure piece of accounting guidance barely made headlines outside crypto circles.

But on Wall Street, experts say, Biden’s move halts momentum on an industry that could dwarf the crypto sector: the $16 trillion opportunity to tokenise assets like stocks and bonds.

The bill would have repealed a piece of Securities and Exchange Commission guidance called SAB 121, which critics say makes safeguarding large amounts of crypto — a business known as custody — financially impossible for big banks.

That matters for cryptocurrencies like Bitcoin, especially as Wall Street is seizing on crypto to win new customers.

But it also matters for Wall Street’s tokenisation efforts.

SEC Chair Gary Gensler “is holding back tokenisation technology with SAB 121,” North Carolina Democrat Wiley Nickel told Congress this week during a hearing convened by the House’s digital assets subcommittee.

“He’s putting President Biden in a very difficult position on this issue.”

Election issue

Nickel’s comments come as crypto emerges as a hot-button election issue.

The industry has amassed a $85 million warchest to sway voters before November’s election.

The industry is attracting increasingly bipartisan support — the bill to repeal SAB 121, for instance, passed both chambers of the House.

SAB 121

SAB 121 is an oddly obscure topic to rally politicians.

It’s a short piece of accounting guidance put out by SEC staff in 2021 notifying firms they should record crypto assets as liabilities on their balance sheets.

The issue is that big banks must hold capital against risky on-balance sheet items. Essentially, SAB 121 makes it prohibitively expensive for custody banks like BNY Mellon or JPMorgan to hold crypto.

Crypto backers see Biden’s unwillingness to budge on this issue as an indicator of his administration’s lingering hostility toward the industry.

Risk profile

The issue is that SAB 121 is so vague, its definition of crypto asset could encompass digital versions of traditional securities purely because they’re recorded on blockchain ledgers, Lilya Tessler, a partner at law firm Sidley Austin, said during the hearing.

If Wall Street’s custodians won’t hold tokenised securities, that’s a problem for their issuers, which must have somewhere to store the underlying asset.

Tessler said that regulated securities don’t change their risk profile merely because they’re recorded on a blockchain.

“A tokenised stock or a bond is still a stock or a bond, whether it’s on a traditional ledger or a blockchain ledger,” she said.

New risks

Sceptics, however, warn that tokenisation does present new risks.

Hilary Allen, a professor at American University Washington College of Law, said during the hearing that tokenisation is increasingly done on public blockchains, which present security, scalability, and governance concerns.

They “suffer from inescapable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets,” she said.

Reach out to the author at joanna@dlnews.com.

After calling a crypto market lull in April and May, BitMEX co-founder Arthur Hayes says now is the time for new crypto projects to launch their tokens.

In his latest essay about how economic conditions will affect the crypto market, Hayes recounted how many portfolio projects of his venture firm recently asked him whether they should launch tokens.

His answer? A resounding yes.

“The trend is clear,” Hayes said, pointing to interest rate cuts from the Bank of Canada and the European Central Bank. “Central banks at the margin are starting easing cycles.”

Interest rate cuts make borrowing cheaper, which tends to drive investors toward riskier assets.

When optimistic investors send crypto prices higher, projects rush to launch tokens to capitalise on the favourable market conditions.

Hayes’ family office runs a crypto venture firm called Maelstrom Capital. The firm lists a portfolio of over 20 crypto startups.

While some of these companies have already launched tokens, others, such as Elixir, have not, despite running a months-long points campaign — often a signal that a crypto project is planning to launch a token.

Investors tire of tokens

There are reasons projects may still want to hold off on launching their tokens.

DeFi users have pushed back against projects that employ what many call predatory “low float high FDV” token structures that benefit early venture investors.

Fully diluted valuation — or FDV — refers to the total value of a token’s supply, including those locked or yet to be distributed, and not just those that are circulating.

As a result, many new tokens have plummeted on launch, signalling a lack of investor demand.

A macroeconomic shift

Still, investor fatigue could be quickly forgotten with a swift change in economic conditions.

Hayes pointed to recent rate cuts from The Bank of Canada and The European Central Bank as an indication that macroeconomic conditions are shifting faster than he anticipated.

“I thought the fireworks would start in August,” he said.

Hayes, however, held off on predicting an immediate rate cut from the Federal Reserve.

Still, the likelihood of rate cuts in the US jumped.

Neil Wilson, chief analyst at Markets.com, said weaker-than-expected US economic data sent the odds of a rate cut in September to 70%.

The reaction was swift.

On June 4, US spot Bitcoin exchange-traded funds saw the largest one-day investment since March 12.

The battle for the yen

Hayes previously outlined why he believes a weakening Japanese yen will send crypto prices higher.

To help prop up the yen’s value, the Fed could create new dollars and swap them for yen with the Bank of Japan. This would allow Japan’s Ministry of Finance to buy up yen on foreign exchange markets, increasing its value.

Hayes argues this so-called money printing is good for risk assets — including crypto.

Hayes pointed to another way to narrow the gap between the yen’s value and those of other currencies.

Interest rates in Japan are much lower than in the US and Europe. This devalues the yen as traders sell it for other currencies with higher interest rates.

To combat the yen selling, central banks with high interest rates could lower them to make this trade less appealing.

However, lowering interest rates also risks stoking another wave of inflation.

Hayes’ bets

Hayes said he’ll divulge his strategy in due course.

“It is time to deploy it again on conviction shitcoins,” he wrote. “Of course, I’ll tell readers what those are after I have purchased them.”

“But suffice it to say, the crypto bull is reawakening and is about to gore the hides of profligate central bankers.”

Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.

As European voters head to the polls across the continent, the crypto industry sent a clear message to European Union officials: Grow the sector. Keep momentum.

Some 373 million voters will cast ballots over the weekend in countries including Germany, France, and Spain for new leaders who will represent them in the European Parliament for the next five years.

The crypto industry has seized on the shifting political winds, laying out a roadmap in a manifesto that leaders say will sharpen incoming officials’ priorities.

The manifesto, signed by four trade associations, claims that the EU is fast losing ground to America and Asia in the race to host new digital economies.

The roadmap will be a “source of inspiration for the next policy cycle,” Joachim Schwerin, an economist at the European Commission who helps develop policy on Europe’s digital markets, told DL News.

Next five years

Schwerin said a stronger partnership between the public and private sectors is key.

“The next five years will be years of co-learning, advanced infrastructure and use-case development, and more meaningful moves towards interoperability based on industry-led standards.”

Unlike its US counterparts, EU regulators have provided the crypto industry with a set of regulations that they can operate within.

But the European industry faces a new battle: global financial hubs are competing for a growing army of crypto users.

Their manifesto suggests that blockchain technology could underlie systems for global trade transparency and cybersecurity, as well as push forward a potential $16 trillion tokenised economy.

The web3 industry is expected to increase from about $1 billion to almost $60 billion by 2028, according to a French industry report laying more policy recommendations published in May.

European competitiveness on trial

The industry requests come as European bigwigs warn against a decline in the bloc’s market competitiveness, already considered a laggard in the global race.

“In an era where technology increasingly dominates, Europe grapples with the challenge of keeping pace with swift global advancements,” Enrico Letta, Former Italian Prime Minister wrote in an April report.

He said the continent has failed in nurturing a strong ecosystem for the tech industry, and should prioritise mobilising private capital.

Letta is not alone commenting on Europe’s lethargic markets.

The EU makes up 11% of global equity market capitalisation, with the US at 45%, according to a report from the European Securities and Markets Authority.

“Greater commitment is needed to create a genuine single market for EU capital,” regulators wrote.

Mammoth task

“The EU has undertaken a mammoth task over the last five-year policy cycle to put legislation in place for the blockchain and digital asset industry, exploiting a state of regulatory infighting across the Atlantic to arrive in pole position,” said Erwin Voloder, head of policy and the European Blockchain Association.

This association published an additional open letter in April focused on blockchain infrastructures.

“We would hope to see a sharper focus on digital identity and blockchain for the real economy,” said Erwin Voloder, head of policy and the European Blockchain Association.

This trend is already emerging, as the EU passed digital identity legislation this year. And, as a win for blockchain advocates, the text includes a line about using zero-knowledge cryptography.

Voloder is among the trade association leaders who have sent hundreds of lawmakers their visions for the next mandate.

Over the past months, crypto organisations published a series of manifestos and open letters directed at the next EU administration.

While the US is taking strides towards establishing a regulation for crypto assets, major players have been embroiled in lawsuits over the grey zone of legal definitions of crypto assets.

MiCA first

Meanwhile the European industry is inching towards the implementation of the Markets in Crypto-Assets rulebook.

The regulation was a first globally, designed especially for crypto service providers and issuers. The rules come into force from the end of June.

MiCA came alongside other laws countering money laundering and tightening financial service rules that implicate crypto firms.

But for now, when it comes to blockchain and crypto, the European Commission has its work cut out.

The European Commission will publish reports on developments in the realm of DeFi, NFTs and crypto lending by the end of the year. These are the instructions noted in the MiCA rulebook.

“The manifestos and wish lists cover these three issues, but also go beyond them,” an EU Commission official, who has seen some of the industry reports, told DL News.

“Experience with MiCA implementation and market developments will be determining factors on what — if anything — we may propose.”

Top crypto exchanges are continuing to service customers in Hong Kong despite a ban on unlicensed platforms that took effect on May 31.

I should know. I live in Hong Kong and to test which crypto exchanges were changing their onboarding processes for residents, I tried to open accounts at the top 10 global platforms over the last week.

I succeeded at Binance, Coinbase, and Kraken even though official records show none of them have applied for a licence, let alone obtained one.

New regime

Regulators are hoping the new licence regime will curb runaway crypto crime in the city.

Investors are losing hundreds of millions of dollars worth of deposits to online exchanges that disappear without a trace and to a raft of exotic schemes ranging from romance scams to fake crypto lawyers promising to recover stolen assets.

In 2023, crypto crime cases jumped 46% over the prior year, according to the Securities and Futures Commission, or SFC, which watchdogs the markets.

And that doesn’t include more than 6,200 complaints made against JPEX, the exchange that vanished last fall with an estimated $200 million in client deposits, according to police officials.

‘Several, including ByBit, OKX, Mexc, and KuCoin, blocked me from signing up.’

The SFC says its licensing regime will let investors select reputable crypto exchanges from a roster it maintains on its website.

To qualify, exchanges needed to apply by February 29. Those that didn’t were given until May 31 to wind down their services. Companies that have applied for licences are allowed to continue operating until the SFC decides whether to approve their applications.

The SFC’s list does not show Binance, Coinbase, or Kraken.

Kraken declined to comment for this article. Coinbase did not respond to a request for comment.

Binance did reply. “Binance is a global platform and does not actively market to the public of Hong Kong or operate in Hong Kong,” a spokesperson told DL News.

A representative from the SFC also declined to comment.

Those that complied

Some platforms have complied with Hong Kong’s new rules. HashKey Exchange secured a licence. So has OSL.

Other exchanges have opted to pull up stakes.

OKX and Bybit, which until recently were applying for licensing in Hong Kong, have wound down their services and withdrawn their petitions. So, too, did Gate.io (as Gate.HK), HTX, and HKVAEX, a Binance-linked company.

Several, including ByBit, OKX, Mexc, and KuCoin, blocked me from signing up. To do so, they track IP addresses, disallow Hong Kong phone numbers for verification, or reject Hong Kong addresses when asked to provide proof of addresses.

Binance’s stark warning

I assumed Binance wouldn’t work.

For starters, the website itself had previously been inaccessible in Hong Kong. I used to need a VPN to access it.

At some point it came back but the homepage bears a stark warning: “The products and services on this website are not intended for individuals in Hong Kong. Nothing on this website is intended to be construed as a solicitation of any individual in Hong Kong.”

After filling in some details, including my Hong Kong phone number, address and uploading a photo of my ID card, I was happily buying Ether, no problem.

Binance did make an effort to try and get licensed in Hong Kong through a local company, HKVAEX, which is a separate exchange.

HKVAEX withdrew its licence application in April and told users to take their money off the platform.

Coinbase’s fuzziness

Coinbase was invited to apply for a licence in June last year by Hong Kong legislator Johnny Ng. At the time, a Coinbase spokesperson told CoinDesk that it was “dedicated to partnering with high-bar regulators.”

The company did not take Ng up on his offer. Its website doesn’t appear to take different jurisdictions into account.

When I try to open an account, I’m told Coinbase is collecting information about me to “comply with regulations” and that it’s “legally required” to ask for certain information.

By whom? Which nation’s regulations is Coinbase referring to?

This is not specified. Hmmm. Coinbase has not applied for a licence in Hong Kong and is not regulated here, the SFC’s list shows.

Nevertheless, the fine print in its legal and privacy disclosures specifically states that the agreement on its website applies to “customers who reside in Singapore and selected countries (Hong Kong and the Philippines).”

In any event, Coinbase’s know-your-customer process approved my application. For some reason, the only method of depositing fiat currency into the account was via an old fashioned bank transfer.

So I duly paid to send my cash from my Hong Kong account to Singapore. Then I bought my ETH.

“Doesn’t it feel good to own a piece of the future?” said the purchase confirmation email from the company that only accepted deposits via bank transfer.

Kraken’s handy articles

Like Coinbase, Kraken’s website also said it needed to collect certain information due to legal requirements.

A link beneath this message told me I could “learn more.” But the link took me to a blog page that had nothing to do with regulation and instead featured articles entitled “What is Bitcoin?” and “What is blockchain?”

Its terms of service make no mention of Hong Kong. I went through the process and bought some Ether.

Then I sat for a moment as a stark realisation hit me — I was now going to have to do all this again in reverse to withdraw the funds.

I decided to have a cup of tea instead.

Callan Quinn is DL News’ Hong Kong-based Asia Correspondent. Get in touch at callan@dlnews.com.

At midday on May 13, there was $45,000 worth of tokens in my MetaMask crypto wallets.

One hour later, it was all gone.

Sitting at my desk in my home in Lagos, Nigeria, I stared blankly at my computer screen, struggling to register the impact of what had happened.

On multiple open browser tabs on my computer, I could see several outgoing crypto transactions from my wallet to unfamiliar addresses.

I was confused.

I looked at the timestamps displayed on several of the transactions, and I knew I could not have initiated them.

That’s because I had been busy working on a different computer for three hours.

My shock soon gave way to dismay as I realised I’d somehow been hacked. But how?

Pain and guilt

I’ve been a crypto reporter for seven years, and in that time I’ve covered many cases of token owners losing their funds to hackers.

Now, the same thing had just happened to me.

I felt pangs of pain and guilt as I remembered that the bulk of the funds belonged not to me but to my family.

They began amassing these crypto tokens — Ether, Tether’s USDT stablecoin, and Jasmy, an altcoin — in 2020 after the Covid-19 lockdowns sparked economic volatility.

As the resident expert in the family, it had fallen to me to take care of their assets, to keep them safe. I was their crypto custodian and my record was unblemished.

Until now.

As painful as the theft was, it was nothing compared to the anguish I felt as I informed my family about what had happened.

The grief I saw etched on their faces reminded me of my late father’s passing in 2017. My ordeal casts the transparency of public blockchains in a different light.

In a few computer strokes, I can see my stolen crypto in someone else’s wallet, and yet I can’t recover my assets. It is a macabre reminder of my ordeal.

The reality is that a similar fate has befallen many crypto users ranging from professionals to novices.

‘It’s easy to lose your crypto if you make a mistake. In my case, it all started with a game.’

Billionaire Mark Cuban lost $870,000 to a hacker last year after he said he downloaded a MetaMask wallet “with some shit in it.”

In 2023, crypto investors lost $1.7 billion to thieves, according to Chainalysis, the blockchain forensics company.

It’s easy to lose your crypto if you make a mistake such as downloading tainted software that exposes your wallet details.

Sometimes, you can lose your funds if a watchful hacker poisons your wallet address by creating a fake wallet that closely matches the victim’s.

In my case, it all started with a game.

Keylogger

I had promised to help a younger relative of mine download a game called “Dave The Driver.”

He grew impatient and tried to do it himself. The problem was he used the computer with the browser wallet that held my family’s crypto assets.

He downloaded a version of the game embedded with malware and it immediately infected my laptop.

The malware probably installed a keylogger — a programme that records keystrokes — and exposed my MetaMask wallet details, which allowed the hacker to syphon out the crypto.

Many online wallets, including MetaMask, don’t use proven safeguards to prevent theft, such as fraud alerts and two-factor authentication.

If this was an account at my bank, I’d would have received a fraud alert as soon as the first transaction was initiated.

The bank would have paused the transaction and given me enough time to confirm whether I had indeed initiated the fund transfer.

Virtually no such preventive features exist for crypto wallets.

Staked funds safe

Indeed, the one warning I received from from a centralised exchange where I held some tokens. The hacker was apparently trying to access my assets and the exchange asked them for a two-factor authentication code.

That attempt was unsuccessful and I managed to hold on to those assets, but it was a small amount. Still, here was a situation where two-factor authentication, or 2FA, worked nicely.

The hacker also tried to steal funds from other wallets I used that had staked crypto but they were unsuccessful.

‘Unless the hacker forgets, I’d be in a race with the thief to secure those staked assets in a new wallet.’

That’s because blockchains like Cosmos typically require users to wait 14 to 21 days to withdraw staked assets after they are unstaked.

The hacker initiated the unstaking process, but was unable to transfer the tokens to their wallet. I’ve since restaked those crypto tokens, but that hardly solves the problem.

(Staking is a process of permitting your tokens to be used in validating transactions on a blockchain network.)

Unless the hacker forgets about my assets, I’ll be in a race with the thief to secure those staked assets in a new wallet when they become available for withdrawal, but that’s a problem for another day.

As for the immediate fallout, I am grateful my family didn’t blame me or my young relative for exposing their assets.

Reflecting on the stories I had written about similar cases, I realised I hadn’t given much thought to the families of people who’d lost crypto funds to hackers.

My focus had been on explaining how the hacks happened, where the funds went and possible recovery efforts.

I can see the assets

What was especially frustrating was the fact I can still see my stolen assets three weeks after the crime.

The bulk of the stolen crypto sits in the two addresses belonging to the hacker. They can be seen here and here.

In any event, I contacted a blockchain security firm to try to block the hacker from being able to trade the stolen crypto for cash via a centralised exchange.

They told me it would cost $2,000 for them to try and block the hacker’s wallet addresses.

Recovering stolen crypto is usually a long process that involves law enforcement action and the cooperation of crypto exchanges.

My family members decided it was better to absorb the loss.

They were not enthused at the prospect of spending more money in pursuit of the hacker when the chances of recovery were slim to none.

Better safeguards needed

I’ve had time to reflect on what happened, and there are lessons to be learned from my experience.

First, keep your computers that hold valuable crypto wallets away from little kids!

On a more serious note, crypto wallets need better safeguards.

If broad-based crypto adoption is the goal, then safely storing these digital assets needs to become simpler, especially for those who prefer self-custody.

Self-custody comes with the expectation that the user is responsible for keeping their assets safe.

But users need more help ― perhaps in the form of real-time alerts and two-factor authentication.

There are smart contract solutions like Safe’s multi-signature wallet where more than one signer is required to complete a transaction.

While multi-sig wallets help improve security, the individual signers must protect their keys ― again, with self-custody, the onus is on the user to ensure the security of the wallet.

Multi-sig to the rescue?

Assuming I’d set up a multi-sig arrangement with the compromised wallets, the hacker would have still been able to steal the funds. They would have used each compromised address to sign the transactions needed to move the funds.

That process would have been slower, but they’d have gotten away with my family money.

However, it’s poor practice to set up a multi-sig controlled by one entity.

Ideally, each signer would have been a different family member whose wallets were on separate devices.

And that’s what we’ve done.

Some may point to the mistake of keeping the funds in an online wallet that is prone to hacking. Or say the tokens should have been safely ensconced in an offline wallet, such as the type offered by hardware wallet makers.

That was the plan, albeit I’d been slow to make the move.

And now I’ve been hit with a $45,000 lesson for my lethargy.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.

Crypto projects that have airdropped tokens to users will hear from the authorities sooner or later.

That’s according to Elliot Chun, partner at Architect Partners, a firm that advises crypto companies on financing strategies.

“Regulators will revisit how some of these token airdrops happened,” he told DL News. “You’re going to get a knock on the door.”

Glacial pace

New crypto projects often reward early users of their protocols with tokens. These rewards — called airdrops — can be worth a few cents to tens of thousands of dollars.

“Some of the highest-profile projects” will catch law enforcement’s attention, Chun said.

“The only reason regulators aren’t going for some of the smaller projects is because they’re too small,” he added. “But if they could, they would.”

At issue is the possibility that insiders may have improperly benefited from the airdrop. For example, knowing which requirements to fulfil in order to get the maximum allocation.

“How many of the ICO-era projects have had the knock?” Chun said, referring to a period in 2017 and 2018 when companies would raise funds by issuing new coins to fund their development, sales known as initial coin offerings, or ICOs

Many of those firms were subsequently sued by the Securities and Exchange Commission — and at times were investigated by the Federal Bureau of Investigation.

The only reason airdrop issuers haven’t heard from regulators yet, Chun said, is because they move at a glacial pace.

“The regulators are so slow — they’re only just getting to Ethereum now,” he said, referring to the SEC’s investigation into the Ethereum Foundation.

And Uniswap, one of the first protocols to airdrop tokens, just received a Wells Notice from the SEC in April.

“Uniswap launched in 2018 and airdropped in 2020. So regulators are operating with a four-to-five-year lag,” Chun said.

Crypto market movers:

Bitcoin is up 0.21% at $71,085.62

Ethereum down 0.95% at $3,811.43

What we are reading:

Solana project with $1bn in deposits aims to reward ‘true believers’ with its airdrop — DL News

Kraken Considers Pre-IPO Funding Round Amid Crypto Market Rally — Milk Road

How the U.S. Government Can Protect the Dollar Through Stablecoins — Unchained

European Central Bank Cuts Key Interest Rates By 0.25% — Milk Road

Ex-FTX exec to join boss Sam Bankman-Fried in prison. Who is Ryan Salame? — DL News

Tom Carreras is a markets correspondent at DL News. Got a tip about airdrops? Reach out at tcarreras@dlnews.com