CoinDesk Crypto

U.S. regulators and law-enforcement officials brought charges on Thursday against BitMEX, a Seychelles-based cryptocurrency exchange that has grown in recent years to be one of the industry’s biggest players.

According to the U.S. Commodity Futures Trading Commission, prosecutors accused BitMEX of facilitating unregistered trading and other violations, including “conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers,” as reported by CoinDesk’s Nikhilesh De.   

The news dominated cryptocurrency news headlines and sent traders and analysts scrambling to assess the damage and implications. Some 23,000 bitcoin were apparently withdrawn from BitMEX addresses in a single hour, the cryptocurrency-markets data firm Glassnode tweeted early Friday, citing blockchain data. 

Related: BitMEX Moves $337M in Bitcoin Ahead of First User Withdrawals Since US Charges

BitMEX, led by CEO Arthur Hayes, said it intends to defend against the allegations “vigorously” adding that the trading platform was operating normally and that all funds were safe. 

Bitcoin prices tumbled after the announcement, as illustrated by CoinDesk’s Daniel Cawrey in an hourly price chart:

Cryptocurrency traders are conditioned to expect volatility whenever there’s major news involving one of the biggest industry exchanges, but despite the quick drop, prices quickly stabilized, as reported by CoinDesk’s Zack Voell.  

BitMEX is a well-known player in the constellation of global cryptocurrency exchanges, partly because it was a pioneer, in 2016, of a new product called the “perpetual bitcoin leveraged swap.” At the time, few traders in nascent digital-asset markets could have anticipated what a major impact the obscure roll-out would have on the industry.

Related: Venezuela Rolls Out Ethereum-Based Stock Exchange to Help Skirt US Sanctions

But the instrument, which made it easy for customers to trade the equivalent of $100 of bitcoin for every $1 down, proved hugely popular and successful among risk-hungry traders, vaulting BitMEX into the top ranks of the world’s biggest cryptocurrency exchanges. 

Even so, the perpetual swaps were infamous for exacerbating price swings: It’s a well-known trope among bitcoin traders that every time the market tilts one way or another, BitMEX customers’ thinly capitalized positions get liquidated in a series of rapid margin calls, exacerbating price swings that reverberated to other exchanges.    

Such episodes are so notorious that crypto traders even have a slang verb for the phenomenon: to get “rekt,” with websites and even Twitter accounts devoted to tracking their magnitude and frequency. 

If BitMEX’s role in the markets were to diminish, that might mean fewer volatility-inducing liquidations.

“Long term, it’s so much better for the spot market,” Steve Ehrlich, CEO of Voyager Digital, an online cryptocurrency trading platform, told First Mover.

Industry executives were quick to point out that some traders had apparently been shifting their allegiances recently to rival exchanges that had copied BitMEX’s “100x” bitcoin derivatives contracts. 

“Two years ago, this would have been catastrophic, because BitMEX was such a huge percentage of everybody who’s playing leveraged trading,” David Weisberger, co-founder and CEO of CoinRoutes Inc., told CoinDesk’s Muyao Shen in a phone interview. “Now, there are quite a few alternatives to BitMEX and several of them have always been more stringent about trading or not allowing U.S. clients to trade on those platforms.”

CoinDesk’s William Foxley reported that the BitMEX news reverberated in the fast-growing blockchain-based sector of “decentralized finance,” or DeFi, where programmers are developing semi-automated platforms for lending and trading. 

The systems are often cast as “uncensorable” since they mainly exist within strings of programming encoded atop the Ethereum blockchain network. The question is whether they still might be subject to the laws of various jurisdictions, since they are, ultimately the craft of “real, live humans.” 

Centralized exchanges such as BitMEX as “opaque platforms that can easily facilitate money laundering,” Robert Leshner, founder of the DeFi lender Compound, told Foxley. “By contrast, DeFi done right is a breath of fresh air – complete transparency, accountability, tamper-resistance and self-custody.”

Ahem.

Cryptocurrency industry regulations are still evolving, and the rulemakers are always a few or myriad steps behind. But they do sometimes crack down, and it’s probably not a coincidence that often they take aim at the most threatening upstarts, those that attempt to change the rules of the game. 

Bitcoin Watch

Bitcoin has come under pressure in the past 24 hours, seemingly due to the BitMEX controversy and risk-off moves in traditional markets. 

On Thursday, the U.S. Commodity Futures Trading Commission (CFTC) and federal prosecutors announced they’re charging BitMEX for failing to implement anti-money-laundering procedures and operating an unregistered trading platform.  

Further, President Trump announced early Friday he and his wife had tested positive for coronavirus and were going into self-quarantine, ratcheting up pre-election uncertainty and sending global equities lower. 

Bitcoin has declined from $10,900 to $10,400 in the past 24 hours. The daily chart now shows the cryptocurrency is stuck in a narrowing price range. 

A triangle breakdown would signal a continuation of the sell-off from August’s high above $12,400 and expose the 200-day average support at $9,400. 

Alternatively, a breakout could invite stronger chart-driven buying pressure. 

– Omkar Godbole

Read More: BitMEX Moves $337M in Bitcoin Ahead of First User Withdrawals Since US Charges 

Token Watch

Ethereum (ETH): Ethereum developers will take a second whack at a final Ethereum 2.0 “dress rehearsal” after the first, Spadina, failed due to “critical peering issues.”

What’s Hot

A partner at Goldman Sachs, Damien Vanderwilt, is joining Galaxy Digital at the beginning of 2021 (The Block)

September volume on DEXs recorded its third consecutive month of doubling the trading volume from the previous month (CoinDesk)

The European Central Bank has applied for a trademark on the phrase “digital euro,” according to Bloomberg reporting (CoinDesk)

Nearly $8 billion have been added to the aggregate supply of stablecoins in the past three months (CoinDesk)

Analogs The latest on the economy and traditional finance

U.S. economy added 661K jobs, below 875K estimate and slowing from 1.49M in August (Bureau of Labor Statistics)

Emerging-market countries could experiment with quantitative easing, suggests new study led by New York Fed economist (New York Fed)

U.S. House passes $2.2T stimulus bill that is unlikely to get through Senate (CNBC)

U.S. companies issue $1.4T over first nine months of 2020, as record issuance facilitated by Federal Reserve backstop (WSJ)

If Democrats win the presidential election that may be good for stocks, because of the likelihood of more fiscal stimulus (CNBC)

Bond-rating firm Moody’s cuts New York State and New York City to Aa2 from Aa1 (WSJ)

Rents on apartments in New York City to San Fransisco are plummeting as people shift to work-from-home (Bloomberg)

Capital expenditures needed to reorient multinational corporations export operations out of China would cost $1T (WSJ)

Tweet of the Day Related Stories

• BitMEX’s Receding Market Share Might Have Spared Bitcoiners Bigger Sell-Off
• Should DEXs Be Worried After BitMEX? DeFi Founders Weigh In

Blockchain payments technology firm Ripple has won a patent for a design that can execute smart contracts based on data collected from the outside world.

• Earlier this week, Ripple Labs received a patent (No. 10,789,068) for a smart contract that can use oracles to connect a distributed platform to a variety of different real-world data.
• Originally filed in June 2018, one example of a use case provided includes using the smart contracts to automatically settle options contracts when pre-agreed conditions are met, such as a company’s debt-to-equity ratio hitting a certain threshold.
• Another example, for the oil industry, is feeding data on the density of a specific crude oil shipment to help a smart contract determine whether to make a trade.
• Smart contracts are mostly associated with Ethereum, but other large blockchains are looking to add similar capabilities.
• Earlier this year, derivatives exchange BitMEX, which is now facing legal troubles, awarded a $50,000 grant to a Bitcoin Core contributor to develop a Bitcoin smart contract.
• One of the two authors of the patent, Ripple’s former CTO Stefan Thomas, previously revived a defunct project called Codius – one working to bring smart contracts to Ripple – into a new startup, Coil.
• While a patent indicates that time and effort going into a rough draft of, in this case, a new smart contract-based derivative, it doesn’t necessarily mean that Ripple has any active plans to move ahead with development.
• CoinDesk reached out to Ripple for comment but hadn’t received a response by press time.

See also: August’s Bitcoin Rally Led to Record Crypto Derivatives Volumes: Report

Related Stories

• Coinbase Reportedly Warns Some UK Users It’s Handing Their Details to the Taxman
• BitMEX Moves $337M in Bitcoin Ahead of First User Withdrawals Since US Charges
• Digital Euro Will ‘Protect’ Eurozone From Foreign Issuers, Says ECB Exec
• Venezuela Rolls Out Ethereum-Based Stock Exchange to Help Skirt US Sanctions

Bitcoin outflows from prominent crypto derivatives exchange BitMEX are already up in the wake of charges from U.S. agencies announced Thursday.

• The U.S. Commodity Futures Trading Commission (CFTC) and the acting U.S. Attorney for the Southern District of New York both announced they are charging BitMEX with facilitating unregistered trading and other illegal transactions.
• Since then, more than 32,200 BTC (worth around $337 million) has been moved from BitMEX – 19% of the exchange’s total funds, according to data source Glassnode.
• Further, outflows are likely to greatly increase following BitMEX’s daily withdrawal time of 13:00 UTC.
• That’s when the exchange processed all withdrawal requests lined up since the previous day.

• Open positions in bitcoin perpetuals (futures without expiry) traded on BitMEX have also declined by nearly 22% from $592 million to $462 million, according to data provided Skew, a crypto derivatives research firm.
• However, liquidity, as measured by the bid/offer spread, on the exchange remains relatively stable, and the large trades can still be executed at low cost.
• The daily average spread between the buy and sell orders (bid/offer spread) on BTC perpetuals for a $10-million quote size remains unchanged on the day at 0.34% – near the lower end of the three-week-long range of 0.32% to 0.39%.

• Bid-offer spreads on other exchanges also remain stable.
• According to Philip Gradwell, economist at blockchain analysis firm Chainalysis, outflows from BitMEX are adding to liquidity on other exchanges.
• “Total inflows to exchanges averaged 65,000 bitcoin this last week, so BitMEX withdrawals are adding 25% more liquidity already,” Gradwell tweeted early on Friday.
• “More than 65% of the total outflow has been transferred to other exchanges, while the rest into unhosted wallets,” he added.
• Stable liquidity on BitMEX and other exchanges suggests there’s no serious panic among traders following the U.S. charges.
• According to Denis Vinokourov, head of research at the London-based prime brokerage Bequant, BitMEX’s reputation among large trading firms had already been dented by outages seen earlier this year.
• As such, its overall importance to the broader ecosystem is not as critical as was the case a few years ago, Vinokourov said.

Also read: Bitcoin, Stocks Fall as Trump Tests Positive for COVID-19

Related Stories

• Coinbase Reportedly Warns Some UK Users It’s Handing Their Details to the Taxman
• Trump COVID Test, BitMEX Charges Bring October Shocks for Bitcoin
• Ripple Wins US Patent for New Oracle-Based Smart Contract Design
• Digital Euro Will ‘Protect’ Eurozone From Foreign Issuers, Says ECB Exec

An executive at the European Central Bank (ECB) has said a future digital euro initiative could save the eurozone from relying on digital currencies issued by foreign entities.

• In a post on Friday, ECB executive member Fabio Panetta, formerly head of the Italian central bank, said the envisioned aim of a central bank digital currency (CBDC) would be to “preserve the public good that the euro provides to citizens.”
• But a digital euro would also ensure foreign-based issuers, whether that’s other central banks or private companies, don’t become too integral to the eurozone’s stability – something that could even threaten the ECB’s monetary sovereignty.
• The post comes as the central bank releases its report into the proposed digital euro.
• Running to 54 pages, the paper argues CBDCs stand to provide citizens with a “risk-free” form of money, unlike cryptocurrencies and private stablecoins, which could require users to surrender their financial privacy to for-profit entities.
• It would also offer citizens easier access to a payment method, thereby improving financial inclusion.
• The report also touches on the theme of protecting the eurozone’s monetary sovereignty: A digital euro could ensure “strategic autonomy” for the bloc, as well as bolster the euro’s international standing as a reserve currency.
• The worry that, just like with the tech giants, the European Union could end up relying on foreign providers for payments, has been palpable across the continent over the past year.
• ECB President Christine Lagarde said in Germany last month that the EU had fallen behind countries like China in CBDC development.
• More directly, France’s economic and finance minister, Bruno Le Maire, said last year Facebook’s libra coin actually threatened to undermine the European project.

See also: CBDCs Could Challenge US Dollar’s Dominance: Deutsche Bank

Related Stories

• Coinbase Reportedly Warns Some UK Users It’s Handing Their Details to the Taxman
• Ripple Wins US Patent for New Oracle-Based Smart Contract Design
• BitMEX Moves $337M in Bitcoin Ahead of First User Withdrawals Since US Charges
• Venezuela Rolls Out Ethereum-Based Stock Exchange to Help Skirt US Sanctions

An executive at the European Central Bank (ECB) has said a future digital euro initiative could save the eurozone from relying on digital currencies issued by foreign entities.

• In a post on Friday, ECB executive member Fabio Panetta, formerly head of the Italian central bank, said the envisioned aim of a central bank digital currency (CBDC) would be to “preserve the public good that the euro provides to citizens.”
• But a digital euro would also ensure foreign-based issuers, whether that’s other central banks or private companies, don’t become too integral to the eurozone’s stability – something that could even threaten the ECB’s monetary sovereignty.
• The post comes as the central bank releases its report into the proposed digital euro.
• Running to 54-pages, the paper argues that CBDCs stand to provide citizens with a “risk-free” form of money, unlike cryptocurrencies and private stablecoins, which could require users to surrender their financial privacy to for-profit entities.
• It would also offer citizens easier access to a payment method, thereby improving financial inclusion.
• The report also touches on the theme of protecting the eurozone’s monetary sovereignty: A digital euro could ensure “strategic autonomy” for the bloc, as well as bolster the euro’s international standing as a reserve currency.
• The worry that, just like with the tech giants, the EU could end up relying on foreign providers for payments, has been palpable across the continent over the past year.
• ECB President Christine Lagarde said in Germany last month that the EU had fallen behind countries like China in CBDC development
• More directly, France’s economic and finance minister, Bruno Le Maire, said last year that Facebook’s libra coin actually threatened to undermine the European project.

See also: CBDCs Could Challenge US Dollar’s Dominance: Deutsche Bank

Related Stories

• BitMEX Moves $337M in Bitcoin Ahead of First User Withdrawals Since US Charges
• Venezuela Rolls Out Ethereum-Based Stock Exchange to Help Skirt US Sanctions
• Atari Plans November Premiere for Video Game Cryptocurrency
• Ethereum Layer SKALE Launches Mainnet Phase 2 With $78M Already Staked

Venezuela has launched a “decentralized” national stock exchange built atop the Ethereum blockchain.

• Enabled under a new law listed in the country’s Official Gazette on Tuesday, the exchange comes as part of new measures announced by President Nicolas Maduro in a big to sidestep tough U.S. sanctions.
• A draft of a wider “Anti-blockade Law for National Development and the Guarantee of Human Rights,” aimed to give the government tools to “defeat all mechanisms of persecution and international blockade” was also announced Tuesday in a speech to the country’s national assembly.
• Already launched, the new BDVE exchange is built to enable Venezuelan investors to trade stocks, bonds and real estate in digital form.
• It is said to run on the Ethereum blockchain digitizing traditional assets using the ERC-223 and ERC-721 token standards, according to its operation manual.
• Authorized by the office of the National Securities Superintendence, the exchange will undergo a trial for 90 days, during which time authorities will decide whether to approve or revoke its trading license.
• U.S. sanctions have hit Venezuela's economy hard in what Maduro calls a violation of Venezuelan’s human rights.
• The president said the anti-sanctions law would empower Venezuela’s oil-backed cryptocurrency, known as the petro, as well as other cryptocurrencies, for national and foreign trade.
• The news comes soon after Venezuela legalized the cryptocurrency mining industry, but at the same time specified that private operations must all work through a pool controlled by the government.

See also: Here in Venezuela, Doctors Struggle to Access Aid From Crypto Platform

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• Digital Euro Will ‘Protect’ Eurozone from Foreign Issuers, Says ECB Exec
• Atari Plans November Premiere for Video Game Cryptocurrency
• DeFi Has a Front-Running Problem. Sparkpool’s Potential Fix Is Launching This Month
• Ethereum Layer SKALE Launches Mainnet Phase 2 With $78M Already Staked

As demand for bitcoin surges in India, especially in urban tech hubs, smart-contract platforms like Ethereum and others are also gaining momentum.

Cosmos, promoted by the Switzerland-based Interchain Foundation, is especially finding traction with students like Aditya Nalini at the Vellore Institute of Technology in southern India. He’s one of four “ambassadors” trained by the community organization Cosmos India, founded in November 2019. The Cosmos India community grew from a handful people in 2019 to more than 1,000 participants in less than nine months, local organizers say, despite the pandemic.

Nalini now holds the majority of his modest wealth in cryptocurrency, he said via email, after initially discovering the collectibles game CryptoKitties in 2017. Although bitcoin is the most popular cryptocurrency, Nalini says he has never owned bitcoin and says there are many students like him. 

Related: Coinbase Launches 5% Staking Rewards for Cosmos’ ATOM

Meanwhile, there’s a bull market raging across Indian crypto exchanges. Global exchanges have also seen an increase in demand for altcoins like ATOMs. None of this is to say Cosmos is the leading cryptocurrency project of 2020. Yet, as a much younger project than Ethereum or Bitcoin, it is quickly gaining brand recognition.  

“OKEx … saw record high numbers when alt season was at its height in August,” said OKEx press manager Vivien Choi, speaking to markets that include India but aren’t limited to it. “OKEx has seen a rise in demand for ATOM especially last month throughout the globe.”

Unlike Bitcoin and Ethereum, which both already have strong brand identities, Cosmos is still relatively new to Indian crypto fans. This gives the project the feel of being the “next big thing.” Nalini described the Cosmos ecosystem as the “father” network, because the Cosmos interoperability project allows all the different altcoin projects to “talk and take help from one another instead of fighting for dominance.”

Instead of holding bitcoin, Nalini holds ether (ETH) and Matic tokens, in addition to ATOM.

Related: Investors Flock to India’s DeFi Scene Months After Central Bank Ban Overturned

“My portfolio currently has 60% atoms, 30% matic and 10% ether, where ETH is more to interact with dapps and play than from an investment standpoint,” Nalini said. “Being a student, it was extremely difficult building a portfolio. … I built mine by winning competitions, participating in bounties and winning giveaways.”

Read more: Matic Launches Mainnet Aiming to Bring More ‘Firepower’ to Ethereum

Local hackathons and meetups have been the engine fueling India’s crypto boom. According to Cosmos India co-founder Abhitej Singh – who is also the communications lead at the organization’s sponsor startup, Persistence One – roughly 1,000 Indian people participated in Cosmos programs so far in 2020. This work is largely funded by a grant from the Interchain Foundation, which manages nearly $104 million generated since the ATOMs token sale in 2017.

“One of the key goals for Persistence One is interoperability, hence there is a lot of alignment with Cosmos’ vision,” Singh said in an email.

Education

Beyond meetups and ambassador training, Cosmos India also operates outreach programs at the Nitte Meenakshi Institute of Technology (NMIT) in Bangalore and the International Institute of Information Technology in Hyderabad.

For example, after working with Cosmos India, NMIT professor Sanjay H.A. said he will add a Cosmos case study to his blockchain engineering course next semester. 

“What I liked about Cosmos is interoperability,” he said. “Usually the sixth semester starts during January. But, due to pandemic, it may start during March 2021 for this academic year.”

Beyond university courses, meetups appear to attract a few dozen participants each, even up to 75 people at an event co-hosted with the startup Inblox Network during Bangalore Blockchain Week in February 2020. 

Read more: India May Be Starting Its Biggest Bitcoin Bull Run Yet

“Students play a significant role in driving the narrative for any new technology in India,” Singh added, speaking to academic collaborations already in process. “We aim to connect with around 50,000 students over the next year through the webinars, hackathons, tutorials and student chapters. Our goal is also to have Cosmos in the curriculum as an optional course in at least five universities.”

Upstart coins

Bitcoin is still undeniably king in the Indian crypto market. But targeted student programs may determine which rupee-altcoin pairs become mainstays on locally accessible exchange platforms. 

“Our initial volume was huge and ATOM-INR volume was among the highest ATOM pairs worldwide for a couple of days,” said Vikram Rangala, CMO at the Indian exchange ZebPay. “Interest from that group tends to shift between tokens depending on which one is active at the moment. But Cosmos also has a lot of support from long-term investors and developers here.” 

However, Rangala added this may merely be a broader bull-market effect. 

“We launched other tokens since then which may have gotten more attention,” he said.

Read more: Cosmos’ Founding Team Broke Up Early This Year. The Project Didn’t

For comparison, Ethereum’s greatest strength has arguably been its community-building strategy, including educational initiatives by Ethereum advocate Natalia Ameline. As for the Cosmos community, Nalini said more than 300 people registered in less than a week for the next Cosmos hackathon, HackAtom India.

“The Cosmos community is rapidly growing in India,” Nalini said, especially among students. 

“Ethereum and Bitcoin communities are still very large, compared to Cosmos,” he said. “But it’s also because of the first movers advantage. … At Cosmos India, something that is very unique is the inclusion of colleges and universities in the outreach program. No other blockchain community has done it so far.”

Related Stories

• Parity Upgrades Polkadot’s Underlying Tech to Make Custom Blockchain Building Easier
• India Said to Be Preparing to Ban Cryptocurrency Trading: Bloomberg

The cryptocurrency and Asian stock markets sold off early Friday after U.S. President Donald Trump announced he and his wife had tested positive to COVID-19.

• In a tweet on Friday, Trump said he and First Lady Melania Trump had tested positive for COVID-19 and would begin their quarantine process “immediately.”
• “We will get through this TOGETHER!,” Trump tweeted.
• The Australia ASX All Ordinaries is down 1.35%.
• In the U.S. markets, S&P 500 futures fell about 2%.
• Gold is up 0.32% on the day to stand at $1908 after falling to a low of $1888 in early Asian trading hours.
• Bitcoin is also down by 1.9%, having fallen from $10,678 to around $10,400, at press time.
• The price action comes several hours after a 3.7% fall on news that U.S. officials indicted BitMEX owner Arthur Hayes and other company executives on charges the crypto trading platform violated know-your-customer and derivatives trading laws.
• Trump will quarantine as he enters the final month of his reelection bid. His major-party opponent, Democratic nominee and former vice president Joe Biden, has been touring the midwestern states following a debate with Trump on Tuesday.

Related Stories

• Bitcoin Posts Biggest Monthly Price Loss Since March
• Election 2020 Prediction Markets: Bettors Say Trump Lost Tuesday’s Debate
• First Mover: Chainlink’s Sorry September Returns Shows DeFi Hysteria Deflating
• Is Reddit’s MOON Token Really 2,000x Bigger Than the Global Economy?

Leaked recordings of a private conversation suggest crypto lender Babel Finance leveraged some user funds to long bitcoin and faced potential default risks during this year’s Black Thursday market crash in March.

Seven audio files first emerged online on Sept. 25 that appear to be parts of a longer in-person conversation between Del Wang, co-founder of Beijing-based Babel, and an unknown person. 

The recordings offer a rare hint of strategies taken by the industry’s nascent crypto lenders in managing their balance sheets, suggesting some business practices may be different from what they claim.

Related: BlockFi Adds an Independent Pricing Partner to Guard Against Flash Crashes

The audio files were initially uploaded to Anchor.fm by an anonymous Twitter user on Sept. 25 but were soon taken down by the platform after Babel filed complaints. The anonymous Twitter user then posted the recordings to YouTube.

Several people familiar with the company listened to the recordings and confirmed to CoinDesk that it was Wang speaking. In one of the files, the unknown person also addressed Wang by his full name.

In a written response to CoinDesk on Sept. 30, a Babel representative said the company is unable to confirm the authenticity of the recordings because they are “fragmented” and “clearly artificially edited.” 

The representative said they can’t comment on the content of the recordings and claimed the accusations made by the anonymous publisher were baseless and not factual. Wang didn’t respond to CoinDesk’s request for comment on the recordings.

Related: Aave Becomes Second DeFi Project to Overtake MakerDAO for Most Crypto Deposited

Following Babel’s initial response to Decrypt that the recordings could be patched together, the anonymous Twitter account posted two longer recordings on Sept. 30 that contain the previous seven parts. The new recordings suggest the conversations happened around March 20.

Founded in 2018, Beijing-based Babel Finance has essentially taken on the role of a crypto bank in the industry by offering both saving and lending products. One of its money drivers was the difference between lending and saving interest.

But according to the leaked recordings, Babel also bet that bitcoin’s price would rise and leveraged both its own and some customer funds to long bitcoin, which faced potential default risks during bitcoin’s 60% crash six months ago.

‘It’s called X Plan’

In the additional recordings published on Sept. 30, Wang can be heard saying Babel started buying bitcoin in early 2019 when its price was around $3,000. The initial capital for those purchases came from the $750,000 raised from Neo Growth Capital (NGC) and another $4 million as deposits, also from NGC.

When asked why NGC didn’t buy bitcoin with the $4 million, Wang said NGC wasn’t planning to use that money for such a purpose. An unidentified partner at NGC reportedly said he was not aware of the NGC funds being used to speculate on bitcoin’s price. 

Wang apparently said in the recording that Babel adopted a strategy where it pledged the bitcoin it purchased to another lender in order to borrow more money when bitcoin’s price went up to $4,000. 

With the newly borrowed money, it continued buying more bitcoin. When bitcoin’s price went up again, it repeated the same method, which put more leverage on its long positions. “We became the customer of ourselves,” Wang said in the recordings.

“We kept increasing our [bitcoin long] positions starting from $3,000 all the way to $14,000,” Wang was heard saying in the recordings. “Initially we had about 3X leverage, but then we leveled up as bitcoin’s price surged.”

Read more: What Crypto Lender Celsius Isn’t Telling Its Depositors

“It’s called X Plan,” Wang said in the recording, seemingly referring to the leverage strategy. “Initially only Flex Yang [Babel’s CEO and the other co-founder] and I knew about it. But later on three other shareholders also became aware of the plan.”

Babel declined to elaborate on X Plan or comment specifically on the usage of NGC’s funds in the beginning, claiming information with its customers is confidential.

The apparent upside of this method is the multiplied return on the back of bitcoin’s bull run in the first half of 2019, when bitcoin went from $3,000 to $14,000. 

Wang said in the recording that when bitcoin reached $14,000, the firm did realize this was not a long-term game and initially set a profit-stop order at $18,000. Even though it had later lowered the stop order targets, it didn’t fully close its positions.

“Had we closed our positions even at $10,500, we could have made net profits of two to three hundred million yuan [around $30 million to $40 million],” Wang was heard saying.

But the downside was the risk of how quickly Babel’s crypto reserves could react to margin calls from its capital sources for more bitcoin if bitcoin’s price suffered a sudden plunge. 

User funds

Babel boasts that it is one of the major crypto lenders in the world, claiming to have over $350 million in outstanding loans as of June 30 this year.

But customers’ deposits only constitute a relatively small part of the money that’s available for borrowers. A majority of Babel’s capital comes from other institutional lenders.

Babel’s CEO and co-founder Flex Yang said prior to March 12 his firm was able to enjoy a collateral-to-value (CTV) rate as low as 100% for borrowing funds from its capital sources. The firm’s main capital partners included BlockFi, Genesis Capital and Tether at the time.

That means Babel would only need to pledge $1 million worth of bitcoin in order to borrow $1 million of USDT. 

But, when lending this amount to its own customers, Babel required an over 160% CTV rate, meaning borrowers needed to put in over $1.6 million worth of bitcoin as collateral. As such, Babel would have the difference of the $600,000 worth of bitcoin collateral sitting on the liability side of its balance sheet.

One reason Babel could enjoy a more attractive collateral rate from its capital sources is because it advertises that Chinese bitcoin miners who are able to generate bitcoin organically and meet margin calls if needed are its primary lending customers. 

In an ideal situation, the risk would be relatively low for Babel if it holds all the $600,000 bitcoin collateral in the example above within its reserve.

But the reality appears to be muddier because Babel didn’t exactly draw a fine line between its own assets and user funds, according to Wang in the recording. 

Read more: SEC Orders Salt Lending to Offer Refunds to Investors in Its $47M ICO

In the response to CoinDesk, Babel claimed that customers’ collateral is either stored in cold wallets or further lent out to counterparties while taking in USDT as collateral. 

“The situation of Babel using customers’ funds to trade crypto doesn’t exist,” the firm claimed in the statement. 

But then that raises a question of how it could even differentiate customers’ positions from its own long positions if they were bundled together to execute a leverage plan.

In one of the recordings, the unknown person said to Wang: “Strictly speaking, these [user] funds do not belong to you, and you should not have used them as leverage.”

“Right,” Wang answered, explaining: “The money we used to buy bitcoin came from our fundraise, our interest profits and profits we made through increasing our long positions.”

The person went on to question: “If it was all just your own asset, you couldn’t have got this large [long] position. … That means you probably have also used parts of borrowers’ collateral and depositors’ funds.” 

Wang did not directly answer with a yes or no to that question but said that “if considering ourselves as a customer, then our funds and real users’ funds are all mixed up together.” 

“The good customers are the real customers. The bad customers are ourselves,” Wang was also heard saying in the recording.

Babel declined to disclose how large its long positions were before this year’s March sell-off.

March 12

The real risk didn’t start to materialize until March 12, when bitcoin’s price crashed by over 60% in a matter of a day. 

The sudden drop led to a severe devaluation of Babel’s collateral at its capital sources, to the extent that its collateral at Tether at one point was worth below 80% of what Babel had borrowed from the USDT issuer, people familiar with Babel’s operations told CoinDesk.

The people said at that point Babel owed Tether 2,000 to 3,000 BTC just to meet the 100% CTV rate. If Tether chose to liquidate Babel’s position, itself would also suffer a loss since the bitcoin collateral it had was worth much less than the money it lent out at that point. 

When asked why Babel didn’t send in more bitcoin to meet the margin calls from its capital sources during the March 12 crash, Wang said in the recording the firm didn’t have the coins for its own positions. He said Babel later liquidated some borrowers’ positions worth 3,000 to 4,000 BTC but didn’t exactly sell them. 

Babel declined to comment on Wang’s comment about it falling short of reserves to meet margin calls but claimed it didn’t default any borrower due to its own violation of terms, such as failing to pay back collateral as demanded.  

Babel said it also didn’t default any institutional lenders and there was no forced liquidation from its capital partners due to Babel’s own violation of terms. 

But one smaller lending partner, Hong Kong-based OSL, force-liquidated Babel’s more than 500 BTC collateral following the March 12 crash, according to screenshots of conversations between the two seen and reviewed by CoinDesk. 

Yang said the forced liquidation came after Babel met OSL’s margin calls and subsequently blamed OSL for the act instead of itself. OSL has not yet responded to CoinDesk’s request for comment.

In fact, the people familiar with the situation said when the March 12 crash happened, Babel asked for credit loans from Tether so it could meet margin calls from other lenders and subsequently transferred the debts to the USDT issuer.

Read more: $100M+ in Margin Calls: Crypto Lenders Demand Collateral as Market Buckles

According to the sources, Babel also managed to get Tether to agree to extend its margin call deadline to a month so that it would have more leeway to send more collateral. 

To gain Tether’s trust for that, Babel even proposed to pledge some of its equity to Tether, which declined the offer but took Babel’s words, according to email exchanges reviewed by CoinDesk between the two parties just days after the market crash.

“Essentially, at that very moment, Babel was in debt to both its customers as well as its capital sources,” the people said of the risks Babel endured at the time.

Babel declined to comment on Tether’s help, citing it cannot disclose business details with its partners without proper approval. 

Tether also declined to comment and said it cannot and will not confirm whether it has any client relationship with any private party.

But the market’s bounce back to above $6,000 within weeks after March 12, together with Tether’s extension and Babel’s new saving products afterwards, helped the firm gather more bitcoin and alleviated its risks for the time being.

Babel declined to disclose its current bitcoin long position but said its overall leverage is kept within three to five times. “We are supporters of crypto assets. Our net assets and a majority of our profits are stored in the form of bitcoin but we adjust the balance based on market’s volatility,” it said.

It’s unclear where Babel’s balance sheet sits right now. The firm said it has expanded its investment into risk management with custody partnerships with Coinbase Custody and is working on opening a custody account with Fidelity. It has hired an internal compliance offer and is working with an outside auditor to up its level in financial transparency.

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Four years ago, when the Seychelles-based cryptocurrency exchange BitMEX announced a new product called the “perpetual bitcoin leveraged swap,” few traders in nascent digital-asset markets could have anticipated what a major impact the obscure roll-out would have on the industry.

But the instrument, which made it easy for customers to trade the equivalent of $100 of bitcoin for every $1 down, proved hugely popular and successful among risk-hungry traders, vaulting BitMEX into the top ranks of the world’s biggest cryptocurrency exchanges. 

Now, digital-asset analysts and investors are scrambling to assess the market damage after U.S. authorities on Thursday brought a series of regulatory and criminal charges against BitMEX and its CEO, Arthur Hayes. 

Related: Should DEXs Be Worried After BitMEX? DeFi Founders Weigh In

One change could be less market volatility, since BitMEX’s perpetual swaps were infamous for exacerbating price swings: It’s a well-known trope among bitcoin traders that every time the market tilts one way or another, BitMEX customers’ thinly-capitalized positions get liquidated in a series of rapid margin calls, exacerbating price swings that reverberated to other exchanges.    

“Long term, it’s so much better for the spot market,” said Steve Ehrlich, CEO of Voyager Digital, an online cryptocurrency trading platform. 

A nagging question going forward is whether some BitMEX customers in the U.S. — apparently in violation of the country’s laws and regulations — will be forced to close their accounts, and possibly sell their bitcoin. That could put downward pressure on prices. 

Bitcoin dropped 4% after the charges were unveiled on Thursday, but a few hours later prices had pared some of their losses and were changing hands around $10,580, staying in a range where they’ve traded for several weeks. 

Related: Market Wrap: Blame BitMEX as Bitcoin Dumps to $10.4K; Record Month For Ethereum Fees

BitMEX officials said in a statement that they “strongly disagree” with the charges and intend to defend against them vigorously. In a Telegram channel, the company said that its trading platform is operating normally and that all funds were safe.

Competitors in the leverage game

Many other cryptocurrency exchanges in recent years had copied BitMEX’s model, rolling out bitcoin-trading instruments with leverage of 100 times or greater. And some traders have shifted to those alternate venues, causing BitMEX’s share of the overall bitcoin-derivatives market to recede. 

That might reduce the market impact from any additional customer defections in the wake of Thursday’s charges, said John Todaro, director of institutional research at crypcorrency analysis firm TradeBlock.   

“Two years ago, this would have been catastrophic, because BitMEX was such a huge percentage of everybody who’s playing leveraged trading,” David Weisberger, co-founder and CEO of CoinRoutes Inc., said in a phone interview. “Now, there are quite a few alternatives to BitMEX and several of them have always been more stringent about trading or not allowing U.S. clients to trade on those platforms.”

A snapshot of bitcoin futures trading on Thursday ranked BitMEX fourth among exchanges on 24-hour volumes, behind Binance, Huobi and OKEX, according to the data site Skew. Open interest, or the value of outstanding contracts, stood at $680 million, trailing OKEx.

“Coming for a while now”

Traders were well aware that BitMEX was under scrutiny and may have moved to get ahead of any crackdown, according to the digital-asset firm QCP Capital.  

“This has been coming for awhile now, and while the charges are heavy and coordinated, it remains to see how much bite it actually has,” the firm said on its Telegram channel. 

Based on QCP’s tally, BitMEX has about 190,000 bitcoins in its vaults, worth about $2 billion at current prices, with another 36,000 bitcoins in an insurance fund.  

It’s possible that BitMEX’s example might provide a shot across the bow to overseas cryptocurrency exchanges that might be cutting corners on compliance, while potentially giving regulatory clarity to those exchanges trying to court U.S. customers. Regulated commodities exchanges in the U.S. also typically offer trading leverage, but the most common bitcoin futures contract, from the Chicago-based CME, only allows positions with about three times the initial money down.

“It clearly sets a tone for other exchanges that compete with Bitmex – and there’s more and more of them popping up every day – that you can’t do that with U.S. customers,” Voyager’s Ehrlich said. “If I was at one of those competing exchanges, I’d be going through my customer records immediately.” 

One of the defendants involved in the BitMEX’s case went as far as to “brag” that “bribing” regulators in a jurisdiction outside the U.S. cost just “a coconut,” according to a statement by assistant FBI director William Sweeney Jr. The Foreign Corrupt Practices Act (FCPA) bars Americans from bribing overseas officials.  

It might have simply been too brazen for regulators to overlook. 

“One thing I know with regulators, is if you say things that are antagonistic in discoverable information places, you’re much more likely to be punished than people who do something very similar but keep their nose clean and not say anything and act respectfully,” Weisberger said.

– With reporting by Omkar Godbole

Related Stories

• Bitcoin Starts Shrugging Off BitMEX Bombshell, Recoups Nearly Half of 4% Price Dip
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September volume on decentralized exchanges recorded its third consecutive month of doubling the trading volume from the previous month after a 160% rise in August, according to Dune Analytics.

• Aggregate trading volume on decentralized exchanges reached $23.6 billion in September up from $11.6 billion in August, benefiting from continued speculative interest in decentralized finance (DeFi) applications and assets.
• Leading decentralized exchange platform Uniswap reported a 128% volume increase in September, reaching $15.3 billion after topping its August record 10 days into the month, as CoinDesk previously reported.
• Growth also benefited from new trading platforms like FTX’s Serum launching in September. Less than 2 weeks after its launch, Serum reported nearly $50 million in volume, according to data aggregator CoinGecko.
• Even though aggregate volume set a new record, only a few decentralized exchanges reported individual growth. Trading volume on only three platforms—Curve, Uniswap, and 0x—grew by more than 50% since August.

• Successful token distributions by Curve and Uniswap are a main driver of sustained growth, Jack Purdy, decentralized finance analyst at Messari, told CoinDesk.
• Their tokens have “undeniably benefitted the protocols” by significantly increasing the Total Value Locked (TVL) on each platform, which “directly correlates to lower slippage and a better trading experience,” Purdy explained.
• In September, previously popular platform Balancer saw its volume drop 2% while the formerly fast-growing Kyber platform grew by less than 0.5 percent.
• The uniquely strong incentives of Uniswap and Curve have “cannibalized volume from some of the other decentralized exchanges that don’t have the same market-making incentives,” said Purdy.

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• First Mover: Bitcoin Low Exchange Balance Looks Bullish but Chart Looks Bearish as $11K Nears

It all started with a couple of retweets.

On September 28, Andrew Cronje, the head honcho at Yearn Finance, retweeted graphic designs for a new project called Eminence, so described by Cronje as a DeFi protocol for a “gaming multiverse.” The game is allegedly a spin-off of a 2016 kickstarter trading card game called Eminence: Xander’s Tales and may incorporate non-fungible tokens (NFTs).

The retweets included graphic designs of the words “Spartan” and “Marine” (playful nods to the respective monikers given to the Synthetix and Chainlink fanbases) and was an “art teaser” meant to “showcase all the different clans in the game,” according to Cronje.

Related: Should DEXs Be Worried After BitMEX? DeFi Founders Weigh In

Cronje hit send on the tweet and went to bed. When he woke up, he would find that the tweet was apparently enough of a signal for DeFi users to dump $15 million worth of DAI into the days-old protocol which, while on Ethereum’s mainnet, was still being alpha tested by Cronje and his team. Eminence didn’t even have a website to use as a front-end for trading; the first users instead swapped tokens directly with the Eminence smart contracts.

The same night, one user exploited Eminence’s code and drained the $15 million. Then, the same attacker returned some $8 million in DAI to a Yearn smart contract controlled by Cronje. 

Now, not even 72 hours after the exploit, affected users have had a portion of their losses returned. 

The rug pull and subsequent bailout is not the first of its kind in DeFi. And it begs the question: Does the DeFi community learn from its mistakes?

Eminence “hack” explained

Related: Ethereum Layer SKALE Launches Mainnet Phase 2 With $78M Already Staked

The exploit itself, which was not even a hack, was simple enough. 

The EMN tokens, generated by the Yearn Deploy smart contract, were distributed initially through a bonding curve, a novel token distribution scheme used by a handful of DeFi products. These bonding curves are smart contracts which “trade” tokens with end users, dispensing one in exchange for another.

For Eminence, users would deposit DAI into the smart contract and receive EMN in return. If the EMN is sent to the smart contract, it is burned and the user receives DAI in return. 

You could also exchange EMN for 5 other tokens (eAAVE, eLINK, eYFI, eSNX and eCRV, all Eminence wrapped versions of the popular tokens with the same tickers). Doing so would burn the deposited EMN. Inversely, if you deposit these tokens into their respective bonding curve contracts, it is burned and you receive newly minted EMN.

To exploit these contracts, the attacker took out a flash loan for 15 million DAI from Uniswap and used this to buy EMN. They then traded and burned half this EMN for eAAVE, driving up EMN’s price. From here, they traded the rest of their EMN for DAI, traded their eAAVE to mint more EMN, and then finally traded this EMN for DAI. 

By the time the attacker was making his moves, someone had already deployed EMN trading pairs on Uniswap.

This process was repeated three times to net the hacker 15,015,533 DAI. A similar attack using a flash loan was executed against the bZx protocol in February.

Yearn Finance’s response and token redistribution

Surprisingly after all that effort, the attacker had a slight change of heart: They transferred $8 million in DAI to a Yearn Finance contract, which Cronje promptly sent to a Yearn multi-sig. 

A handful of developers, one of whom works on Yearn, cooked up a way to distribute the DAI to users affected by EMN’s price crashing through the floor as a result of the exploit. DAI-denominated reparations are now being distributed to users who trade for EMN from the bonding curve contract and Uniswap.

“Receiving [the DAI tokens] felt like we were gifted a ticking bomb,” banteg, a Yearn core developer, told CoinDesk. He adding that the team worked fast to distribute the funds lest the affected users get restless.

Banteg believes that most of the affected users were “in the loop” since half of the restitution was claimed within 19 minutes of the distribution contract being launched. Only $338,000 DAI has yet to be claimed, according to data banteg shared with CoinDesk.

Looking past the attacker’s bad behavior, the fiasco was exacerbated by two driving forces: trust and greed. 

In his tweets, Cronje never said that the Eminence protocol was ready. He didn’t even mention what the protocol was for. But a single retweet from the guy behind Yearn – that DeFi unicorn which surged in price from $31 to over $43,000 this year – was enough for traders to pile into Eminence’s token.

Yearning for another moonshot, intrepid Eminence users began interacting with the protocol before Cronje gave any signal that it was ready for investors. He’s even tweeted caveats before this incident that anyone using his protocols should proceed with caution.

Cronje has since stated his intentions on Twitter to continue his work on Eminence, adding that he has roughly 100 contracts to test. He also cautioned the DeFi faithful to “wait for official announcements” before using them.

Still, some of the affected traders, reeling from their losses, weren’t ready to let Cronje off the hook.

“Why put unfinished code on mainnet to be tested?” one user chimed in. “The contract should have been on testnet.”

Others, like Delphi Digital’s Tom Shaughnessy, defended Cronje, affirming that “it’s not [his] fault that people degen into [his] work before it is finished.”

DeFi lessons hard-learned or hardly learned?

Indeed, so-called DeFi degens have a reputation of “aping” into smart contracts in search of gains before they are thoroughly vetted. Traders deposited several hundred millions worth of tokens into the yield farming protocol Yam Finance back in August, for instance, days before a bug in its unaudited code drove the token’s price into the ground.

More recently, traders deposited so many tokens into the then-unaudited SushiSwap contract that its volume surpassed Uniswap. Days later, SushiSwap’s creator dumped his developer’s share of SUSHI tokens for $13 million in ETH, only to return the sum in ETH to the SushiSwap treasury after a bout of guilt.

With this Eminence exploit and summary restitution now in the books, DeFi traders have another reason to be leery of unvetted protocols. But with the payback soothing their losses somewhat, perhaps this lesson may be forgotten once the next “big new thing” comes around.

Related Stories

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The sudden takedown of BitMEX has cast a new light on Ethereum’s decentralized finance (DeFi) markets.

On Thursday, the U.S. Commodity Futures Trading Commission (CFTC) and Department of Justice (DOJ) served the Seychelles-based crypto derivatives exchange with a slew of charges, arresting CTO Samuel Reed and seeking out CEO (and admitted DeFi degen) Arthur Hayes for violating the Bank Secrecy Act. 

While centralized exchanges (CEXs) reside on central servers in various municipalities around the globe, decentralized exchanges (DEXs) like Uniswap remain uncensorable, existing within smart contracts on top of the Ethereum blockchain. However, they are founded by real, live humans who are subject to the whims of law enforcement agencies. Are they next?

Related: BitMEX’s Receding Market Share Might Have Spared Bitcoiners Bigger Sell-Off

The value proposition of DeFi platforms becomes readily apparent during regulatory crackdowns such as with BitMEX, Robert Leshner, founder of DeFi lending platform Compound, told CoinDesk in an email.

He labeled centralized exchanges such as BitMEX as “opaque platforms that can easily facilitate money laundering.”

“By contrast, DeFi done right is a breath of fresh air – complete transparency, accountability, tamper-resistance, and self-custody,” he said, referring to the fact that DeFi transactions exist for all to see on Etherscan. “In the coming months and years, regulators will likely embrace the virtues and benefits of DeFi.”

Leshner’s view was echoed by Michael Egorov, founder of DeFi stablecoin exchange Curve, who told CoinDesk that it was “no surprise” BitMEX was taken down given that “CEXs without KYC are natural mixers.” (Coin mixers like Ethereum’s Tornado Cash or Bitcoin’s Wasabi Wallet can be used to launder cryptocurrency, leaving its origins untraceable.)

Related: Decentralized Exchange Volume Rose 103% in September to Record $23.6B Even as Growth Consolidated

DEXs, on the other hand, are not mixers given the auditability of blockchain transactions.

“ETH exchanged to USDT on Uniswap keeps USDT as ‘dirty’ and traceable to the source as ETH was (and the same applies to Curve, or Balancer, or anything similar),” Egorov said. “It could take time for regulators to understand probably, but I think their job would have been much easier if all the exchanges were DEXs.”

Lingering doubts

Regardless of DeFi’s apparent virtues, the $11 billion DeFi market pales in comparison to the larger CEX market. Moreover, DeFi’s is often left copying the best CEXs have to offer.

Recently, BitMEX’s most popular product found its way into DeFi markets with cryptocurrency derivatives exchange dYdX. The Andreessen Horowitz-backed firm launched its Bitcoin Perpetual Contract in May, followed by a perpetual contract denominated in ether in August.

Read more: CipherTrace Outlines Regulatory Gray Zones Plaguing Booming DeFi Sector

Like BitMEX, dYdX blocks users from multiple jurisdictions including the United States. “We believe we are in compliance with all applicable regulations in the markets we serve,” dYdX founder Antonio Juliano told CoinDesk in a Telegram message.

BitMEX’s products themselves were not the cause for the CFTC and DOJ clampdown, however. Regulators specifically cited lack of formal know-your-customer (KYC) and anti-money laundering (AML) checks.

According to the DOJ complaint:

“For example, in or about May 2018, Arthur Hayes, the defendant, was notified of claims that BitMEX was being used to launder the proceeds of a cryptocurrency hack. BitMEX did not implement a formal AML policy in response to this notification.”

Many DEXs fall under the same guise, including Uniswap, especially given recent events with funds from the hacked KuCoin exchange.

Uniswap’s rise

Uniswap rose to prominence over the course of 2020 after releasing the second version of its platform with a novel take on increasing market liquidity through token pools.

Yet Uniswap does not have KYC or AML procedures. All a user needs is an Ethereum wallet – easily downloadable in minutes – and some tokens. (However, it remains fairly difficult to purchase ETH without going through a KYC check at some point.) Traders that used the platform before September were even rewarded with a lucrative airdrop of Uniswap’s new UNI governance token.

Uniswap founder Hayden Adams declined to comment for this story.

Stani Kulechov, co-founder of the Aave DeFi money market, told CoinDesk that builders shouldn’t be daunted by Arthur Hayes’ current predicament. Instead, he said, take note of the crypto industry’s two largest success stories: Bitcoin and Ethereum.

Wrote Kulechov:

“For DeFi builders it might be relevant to have from the start a clear path towards decentralized governance similarly what Ethereum and Bitcoin is today, where there is no centrally controlled entity governing these protocols by design. In the end also remember who you are building for and make safe products for all stakeholders.”

Whether that will stand the test of U.S. financial regulators remains to be seen.

Brady Dale contributed reporting.

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• Market Wrap: Blame BitMEX as Bitcoin Dumps to $10.4K; Record Month For Ethereum Fees

The Atari Group, the company behind such classic video games as Pac-man, will begin publicly selling its Atari Token (ATRI) cryptocurrency in early November.

• ATRI is a self-styled entertainment industry payment method in the form of an ERC-20 token atop the Ethereum blockchain. It’s been in the works since at least early 2018.
• Crypto casinos, “blockchain games” and the video game distribution platform Ultra.io will be among the utility token’s earliest use cases, said Atari's blockchain subsidiary, Atari Chain.
• The game maker said it will reap 35% of ATRI sales revenue. Issuance partner ICICB Group, a fintech whose only public client is Atari, stands to take the rest.
• The token will list on Bitcoin.com and Atari’s own crypto exchange at the close of the public sale.
• Investors and game players have bought up $1.5 million in ATRI tokens through two private pre-sales which priced the token at $0.08 cents, Atari said. A third pre-sale is ongoing.
• Cointelegraph reports that U.S citizens will not be able to take part in the sale.

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Derivative exchange BitMEX’s legal issues with U.S. regulators took a toll on bitcoin’s price while DeFi gave Ethereum miners more fee revenue than ever. 

• Bitcoin (BTC) trading around $10,582 as of 20:00 UTC (4 p.m. ET). Slipping 1% over the previous 24 hours.
• Bitcoin’s 24-hour range: $10,427-$10,931
• BTC below its 10-day and 50-day moving averages, a bearish signal for market technicians.

Bitcoin’s price was as high as $10,932 on spot exchanges such as Coinbase before quickly plunging 4% within two hours to as low as $10,427. It subsequently rebounded a bit to $10,582 as of press time. 

The drop coincided with the announcement crypto derivatives venue BitMEX was formally being charged by U.S. regulators for unregistered trading, among other transgressions. 

Related: BitMEX’s Receding Market Share Might Have Spared Bitcoiners Bigger Sell-Off

“The news of BitMEX being served with a lawsuit by the [Commodity Futures Trading Commission] was met with broad-based selling pressure,” said Denis Vinokourov, head of research for crypto brokerage Bequant.

Read More: BitMEX ‘Attempted to Evade’ US Regulations, CFTC, DOJ Charge

“This is big,” said Vishal Shah, an options trader and founder of derivatives exchange Alpha5, on the CFTC’s announcement. However, Shah noted the declining influence of BitMEX on the market since March, when over $700 million in liquidations helped cause the price of bitcoin to dump as low as $3,854 on spot exchanges.

“BitMEX has slowly and consistently bled open interest since March,” Shah said. “This news may accelerate that narrative, but I do not see it being a systemic risk at this point if there is an orderly resolution.”

Related: Should DEXs Be Worried After BitMEX? DeFi Founders Weigh In

A number of new derivatives venues, most of which do not provide access to anyone in the United States, is one of the reasons for BitMEX’s decline in the market, said Bequant’s Vinokourov. “BitMEX’s overall importance to the broader ecosystem is not as critical as was the case a few years ago,” Vinokourov added. “Not only have many other exchanges been catching up with BitMEX liquidity and order book depth, but also a widely publicized tech issue earlier this year put a big dent into venue’s reputation amongst the larger crypto trading desks.”

Nonetheless, liquidations on BitMEX helped push bitcoin’s price down Thursday, as $15 million in sell liquidations in the past 24 hours wiped out long-oriented traders on the derivatives platform, similar to a margin call in traditional markets.

Outside of BitMEX, macro economic events could lead to selling pressure as October opens, according to Andrew Tu, an executive at crypto quant trading firm Efficient Frontier.

“Bitcoin has been stuck in the $10,000-$11,000 range since the drop in the beginning of September,” noted Tu. “The elephant in the room at this point is pretty much the macro climate, with [U.S.] elections coming up and the inability to compromise on a fiscal stimulus between the House [of Representatives] and Senate,” he added.

Ethereum miners reap record revenue from fees

Bequant’s Vinokourov was more bullish on the crypto market’s future, particularly with progress in Ethereum’s long and winding upgrade. “The underlying fundamentals are positive, especially for ETH given the very recent launch of ‘Spadina’ – the final testnet ahead of the Ethereum blockchain’s upgraded mainnet release,” added Vinokourov.

The second-largest cryptocurrency by market capitalization, ether (ETH), was down Thursday trading around $353 and slipping 0.83% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: Braintrust Raises $18M to Bring DeFi-Thinking to the Gig Economy

As increasing numbers of users adopt decentralized finance, or DeFI, on Ethereum, miners are reaping more revenue from the network than ever. Miner revenue from fees charged to use Ethereum averaged 38% in August, which was then a record high. It was surpassed in September, when miner revenue from fees hit another record, at 48.5%. 

Tellurian Capital’s Jean-Marc Bonnefous, who has been investing in the crypto ecosystem since 2014, said some of the outrageous returns within DeFi are enticing users despite high transactional fees the miners are pocketing.

“Even with high gas costs on Ethereum, some of the net returns available on DeFi are still quite attractive compared to alternatives,” said Bonnefous. ”The basic problem, though, is that these returns are not sustainable in the long run, whatever the Ethereum costs and issues are.”

Other markets

Digital assets on the CoinDesk 20 are mixed on Thursday, mostly in the red. One winner as of 20:00 UTC (4:00 p.m. ET):

• zcash (ZEC) + 3.5%
• litecoin (LTC) + 1%
• tezos (XYT) + 0.19%

Notable losers as of 20:00 UTC (4:00 p.m. ET):

• monero (XMR) – 4.5%
• 0x (ZRX) – 2.2%
• ethereum classic (ETC) – 2.1%

Read More: Startup Backed by Uber Co-Founder Poaches CoinList President 

Equities:

• The Tokyo Stock Exchange had technical problems, with a full-day halt. Although many Asian markets were closed for a holiday, Australia’s S&P/ASX 200 climbed 0.98%.
• Europe’s FTSE 100 closed in the green 0.23% as better-than-expected manufacturing numbers signaled some economic recovery on the continent.
• In the United States the S&P 500 gained 0.53% as tech shares led the index higher despite some uncertainty around fresh coronavirus-related stimulus.

Commodities:

• Oil was down 3.2%. Price per barrel of West Texas Intermediate crude: $38.62.
• Gold was in the green 1% and at $1,903 as of press time.

Treasurys:

• U.S. Treasury bond yields fell Thursday. Yields, which move in the opposite direction as price, were down most on the 10-year, dipping to 0.676 and in the red 1.6%.

Related Stories

• Bitcoin Starts Shrugging Off BitMEX Bombshell, Recoups Nearly Half of 4% Price Dip
• Crypto Trading Platform BitMEX ‘Attempted to Evade’ US Regulations, CFTC, DOJ Charge

Derivative exchange BitMEX’s legal issues with U.S. regulators took a toll on bitcoin’s price while DeFi gave Ethereum miners more fee revenue than ever. 

• Bitcoin (BTC) trading around $10,582 as of 20:00 UTC (4 p.m. ET). Slipping 1% over the previous 24 hours.
• Bitcoin’s 24-hour range: $10,427-$10,931
• BTC below its 10-day and 50-day moving averages, a bearish signal for market technicians.

Bitcoin’s price was as high as $10,932 on spot exchanges such as Coinbase before quickly plunging 4% within two hours to as low as $10,427. It subsequently rebounded a bit to $10,582 as of press time. 

The drop coincided with the announcement crypto derivatives venue BitMEX was formally being charged by U.S. regulators for unregistered trading, among other transgressions. 

Related: BitMEX’s Receding Market Share Might Have Spared Bitcoiners Bigger Sell-Off

“The news of BitMEX being served with a lawsuit by the [Commodity Futures Trading Commission] was met with broad-based selling pressure,” said Denis Vinokourov, head of research for crypto brokerage Bequant.

Read More: BitMEX ‘Attempted to Evade’ US Regulations, CFTC, DOJ Charge

“This is big,” said Vishal Shah, an options trader and founder of derivatives exchange Alpha5, on the CFTC’s announcement. However, Shah noted the declining influence of BitMEX on the market since March, when over $700 million in liquidations helped cause the price of bitcoin to dump as low as $3,854 on spot exchanges.

“BitMEX has slowly and consistently bled open interest since March,” Shah said. “This news may accelerate that narrative, but I do not see it being a systemic risk at this point if there is an orderly resolution.”

Related: Should DEXs Be Worried After BitMEX? DeFi Founders Weigh In

A number of new derivatives venues, most of which do not provide access to anyone in the United States, is one of the reasons for BitMEX’s decline in the market, said Bequant’s Vinokourov. “BitMEX’s overall importance to the broader ecosystem is not as critical as was the case a few years ago,” Vinokourov added. “Not only have many other exchanges been catching up with BitMEX liquidity and order book depth, but also a widely publicized tech issue earlier this year put a big dent into venue’s reputation amongst the larger crypto trading desks.”

Nonetheless, liquidations on BitMEX helped push bitcoin’s price down Thursday, as $15 million in sell liquidations in the past 24 hours wiped out long-oriented traders on the derivatives platform, similar to a margin call in traditional markets.

Outside of BitMEX, macro economic events could lead to selling pressure as October opens, according to Andrew Tu, an executive at crypto quant trading firm Efficient Frontier.

“Bitcoin has been stuck in the $10,000-$11,000 range since the drop in the beginning of September,” noted Tu. “The elephant in the room at this point is pretty much the macro climate, with [U.S.] elections coming up and the inability to compromise on a fiscal stimulus between the House [of Representatives] and Senate,” he added.

Ethereum miners reap record revenue from fees

Bequant’s Vinokourov was more bullish on the crypto market’s future, particularly with progress in Ethereum’s long and winding upgrade. “The underlying fundamentals are positive, especially for ETH given the very recent launch of ‘Spadina’ – the final testnet ahead of the Ethereum blockchain’s upgraded mainnet release,” added Vinokourov.

The second-largest cryptocurrency by market capitalization, ether (ETH), was down Thursday trading around $353 and slipping 0.83% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: Braintrust Raises $18M to Bring DeFi-Thinking to the Gig Economy

As increasing numbers of users adopt decentralized finance, or DeFI, on Ethereum, miners are reaping more revenue from the network than ever. Miner revenue from fees charged to use Ethereum averaged 38% in August, which was then a record high. It was surpassed in September, when miner revenue from fees hit another record, at 48.5%. 

Tellurian Capital’s Jean-Marc Bonnefous, who has been investing in the crypto ecosystem since 2014, said some of the outrageous returns within DeFi are enticing users despite high transactional fees the miners are pocketing.

“Even with high gas costs on Ethereum, some of the net returns available on DeFi are still quite attractive compared to alternatives,” said Bonnefous. ”The basic problem, though, is that these returns are not sustainable in the long run, whatever the Ethereum costs and issues are.”

Other markets

Digital assets on the CoinDesk 20 are mixed on Thursday, mostly in the red. One winner as of 20:00 UTC (4:00 p.m. ET):

• zcash (ZEC) + 3.5%
• litecoin (LTC) + 1%
• tezos (XYT) + 0.19%

Notable losers as of 20:00 UTC (4:00 p.m. ET):

• monero (XMR) – 4.5%
• 0x (ZRX) – 2.2%
• ethereum classic (ETC) – 2.1%

Read More: Startup Backed by Uber Co-Founder Poaches CoinList President 

Equities:

• The Tokyo Stock Exchange had technical problems, with a full-day halt. Although many Asian markets were closed for a holiday, Australia’s S&P/ASX 200 climbed 0.98%.
• Europe’s FTSE 100 closed in the green 0.23% as better-than-expected manufacturing numbers signaled some economic recovery on the continent.
• In the United States the S&P 500 gained 0.53% as tech shares led the index higher despite some uncertainty around fresh coronavirus-related stimulus.

Commodities:

• Oil was down 3.2%. Price per barrel of West Texas Intermediate crude: $38.62.
• Gold was in the green 1% and at $1,903 as of press time.

Treasurys:

• U.S. Treasury bond yields fell Thursday. Yields, which move in the opposite direction as price, were down most on the 10-year, dipping to 0.676 and in the red 1.6%.

Related Stories

• Bitcoin Starts Shrugging Off BitMEX Bombshell, Recoups Nearly Half of 4% Price Dip
• Crypto Trading Platform BitMEX ‘Attempted to Evade’ US Regulations, CFTC, DOJ Charge

Bitcoin traders have begun recovering from Thursday’s bombshell indictments from the U.S. Commodity Futures Trading Commission and Department of Justice against BitMEX and the exchange’s co-founders Arthur Hayes, Benjamin Delo and Samuel Reed, and Business Development Lead Greg Dwyer.

• Bitcoin (BTC) initially dropped 4% from roughly $10,800 on BitMEX futures on the news, a relatively modest move for typically volatile cryptocurrency markets. Early last month, for example, BTC made three consecutive 7%-8% dips Sept. 2-3 after trading above $11,000 for the first time this year.
• “There was some expected negative price action following the dissipation of the BitMEX lawsuit, but the market has seemingly settled a few percent down from where it was beforehand,” said Sam Trabucco, quantitative trader at Alameda Research.
• Alternate cryptocurrencies (altcoins) followed BTC’s lead Thursday afternoon with the decentralized finance sector of altcoins dropping less than 3% over the past 24 hours, according to Messari.
• Thursday is historically the most volatile day of the week, according to cryptocurrency research firm Markets Science. But “it’s not yet clear whether the market as a whole decides the impact we’ve already seen is sufficient,” said Trabucco.
• At last check, BTC has retraced almost half of the intraday dip as buyers pushed the price from $10,450 to $10,580 on BitMEX.
• The market’s immediate reaction Thursday may only be the precursor to more volatility, however, Trabucco told CoinDesk. “We’ll see how the markets that are currently mostly asleep react. I’d expect increased potential for volatility as more people are able to react.”
• If Thursday’s minor dip cascades into a larger sell-off, “It’s going to be a buying opportunity,” said Steve Ehrlich, CEO of Voyager Digital, a publicly listed cryptocurrency exchange. “Whatever gets liquidated, will get liquidated, and the markets will reposition and start growing again.”
• As traders react to the news, BitMEX assured its customers that “the BitMEX platform is operating entirely as normal and all funds are safe,” according to a message published to its announcements channel on Telegram.
• The Seychelles-based business, known for pioneering perpetual swap futures in cryptocurrency markets, ranks fourth by 24-hour volume and second by open interest, according to Skew.

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• Crypto Trading Platform BitMEX ‘Attempted to Evade’ US Regulations, CFTC, DOJ Charge

Ethereum mining pool Sparkpool will launch its new mining network, Taichi Network, complete with a “private transaction” feature in October, CoinDesk confirmed with Sparkpool co-founder Xin Xu.

The network “will gradually go online” this month in what could be one solution to decentralized finance’s (DeFi) long-standing problem with front running, the practice of trading based on information about future trades contained in a blockchain’s transaction queue in cryptocurrency markets.

Taichi’s features are “not designed for selfish usage” but instead for the “public good” of the Ethereum ecosystem, Xu told CoinDesk in an email. 

Related: First Mover: Nine (Bullish) Bitcoin Predictions for Final Months of (Awful) 2020

“We will offer Taichi Network’s features as infrastructure to the Ethereum [ecosystem], and we will see how the reaction works out then,” he said. Think of it as a privacy shield meant to level the playing field for all traders.

Sparkpool currently makes up 23% of Ethereum hashing power, according to Etherscan.

Ethereum’s dark forest

Ethereum’s transaction queue – called a  mempool – is often alluded to as a “dark forest” due to the predatory nature of arbitrage bots spying on transactions. 

First coined by venture capital firm Paradigm’s Dan Robinson, the “dark forest” metaphor describes bots lurking in a blockchain’s mempool to copy and execute profitable trades before the original executes.

Related: Record $166M Ethereum Fees Last Month Were 6 Times Bigger Than Bitcoin’s

Bot arbitrage has long troubled Ethereum, most notably described in a 2019 Cornell University paper entitled “Flash Boys 2.0.”

Profits earned by arbitrage bots skyrocketed over the summer months with an average of 50-100 ether (ETH) earned per day in May, according to estimates shared with CoinDesk by one arbitrage trading firm that requested anonymity. These profits climbed as high as 2,000-3,000 ETH per day at the height of the DeFi mania in early September.

Read more: DeFi Traders Are Gaming Ethereum for Higher Profits, Researchers Say

Private transaction networks like Taichi can cut a path through the trees, however. The mining party, in this case Sparkpool, opts out of broadcasting the chosen transaction destined for its block to the rest of the network. By not communicating to other mempool lurkers, the miner’s transaction gains a higher degree of safety from hungry bots.

For example, Sparkpool’s latest innovation enabled white-hat hacker Samczun to recently save 25,000 ether worth $9.6 million from broken decentralized finance (DeFi) project Lien Finance, according to a self-published account.

On the other hand, you are entrusting your transaction entirely to Sparkpool, meaning the mining giant could front run you itself more easily.

Xu said disrupting the current front-running issues plaguing DeFi transactions “is definitely a direction worth exploring” with Taichi.

Taichi’s early days

Certain aspects of Taichi Network are public, including a general domain registered in July 2020, according to WHOIS. The website remains under construction, but describes Taichi as a “viable Proof-of-Stake (mPoS) Ethereum sidechain” complete with relayers and smart contract capabilities.

Relayers broadcast transactions faster than regular settlements on blockchains by constructing pathways between major nodes. Both Bitcoin and Ethereum have their own relayer networks, such as FIBRE and BloXroute.

Read more: Marlin Releases Open-Source ‘Layer 0’ Transaction Relayer for Ethereum

Sparkpool data website GasNow also includes information on Taichi, describing the network as “greatly improving the efficiency of transactions broadcast” by “directly pushing received transactions into a mempool of mining pools.”

CoinDesk’s invest: ethereum economy is a fully virtual event Oct. 14 exploring the ramifications for investors of the sweeping changes underway within the Ethereum ecosystem. Learn more.

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Amid a rising incidence of ransomware attacks being reported this year, the U.S. Financial Crimes Enforcement Network (FinCEN) issued an advisory Thursday concerning such attacks.

• FinCEN’s advisory notes that governmental entities, and financial, educational and health care institutions have been particularly targeted by these attacks. 
  
• The financial watchdog’s advisory notes the “severity and sophistication” of such attacks has continued to rise. It adds that this also represents a major concern for financial intermediaries, like banks or exchanges, because quite often they’re the ones processing ransom payments for such attacks. 
  
• The advisory said these attacks have increasingly targeted larger enterprises for bigger payouts, attackers tend to share resources to increase effectiveness of their attacks, and usually require payments be made using cryptocurrencies, most commonly bitcoin (BTC). 
  
• It also notes ransomware attacks on small municipalities and healthcare entities have also seen an increase, likely due to the lack of sophisticated cybersecurity controls available to such entities. 

Related Stories

• This Entrepreneur Was SIM-Swapped so Often, He Started a Company to Fight It
• Eastern Europe Actively Using Crypto for Illicit Purposes: Chainalysis
• Most Attacks on Cybersecurity Firm’s Decoy Servers Aimed at Mining Crypto: Report
• Over $1M in Ryuk Ransomware Bitcoin Was ‘Cashed Out’ on Binance: Report

Amid a rising incidence of ransomware attacks being reported this year, the U.S. Financial Crimes Enforcement Network (FinCen) issued an advisory Thursday concerning such attacks.

• FinCen’s advisory notes that governmental entities, and financial, educational and health care institutions have been particularly targeted by these attacks. 
  
• The financial watchdog’s advisory notes the “severity and sophistication” of such attacks has continued to rise. It adds that this also represents a major concern for financial intermediaries, like banks or exchanges, because quite often they’re the ones processing ransom payments for such attacks. 
  
• The advisory said these attacks have increasingly targeted larger enterprises for bigger payouts, attackers tend to share resources to increase effectiveness of their attacks, and usually require payments be made using cryptocurrencies, most commonly bitcoin (BTC). 
  
• It also notes ransomware attacks on small municipalities and healthcare entities have also seen an increase, likely due to the lack of sophisticated cybersecurity controls available to such entities. 

Related Stories

• This Entrepreneur Was SIM Swapped So Often, He Started a Company to Fight It
• Eastern Europe Actively Using Crypto for Illicit Purposes: Chainalysis
• Most Attacks on Cybersecurity Firm’s Decoy Servers Aimed at Mining Crypto: Report
• Over $1M in Ryuk Ransomware Bitcoin Was ‘Cashed Out’ on Binance: Report