On 8th November 2022, Binance CEO Changpeng Zhao (CZ) announced on Twitter that Binance intends to fully acquire FTX to help cover their liquidity crunch after FTX CEO Sam Bankman-Fried (SBF) reached out to Binance for help. In case you are out of the loop, our previous article “SBF vs CZ War” covers the core timeline of what has been happening that led to this acquisition.
In this article, we will break down the acquisition events as it unfolds and explain how this will affect every investor in the crypto space. You can also check out our latest video — FTX Collapsing: Biggest Disaster in Crypto? for more insight.
According to a report by Reuters, SBF sent an internal message on Tuesday morning to company employees stating that around $6 billion had been withdrawn out of FTX. Given the situation, FTX had no choice but to halt all crypto withdrawals due to lack of liquidity, which confirmed insolvency rumors about FTX.
Since the liquidity of FTX and Alameda Research are mostly held in illiquid FTT (FTX native token) instead of liquid cash, there was no way for FTX users to cash out their funds. Moreover, no strategic investors and partners of FTX were able to help cover their billions of dollars in debt. As a last resort, SBF turned to none other than CZ who has more than enough resources and manpower to rescue him.
Binance to Acquire FTX
Hours after the withdrawal suspension, CZ announced on Twitter that Binance signed a non-binding Letter of Intent (LOI), intending to fully acquire FTX and help cover the liquidity crunch to protect users. For the time being, Binance is conducting a full Demand Draft (DD) in which they are assessing the situation about the acquisition.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
However, keep in mind that the LOI is non-binding, which means Binance has the discretion to pull out from the deal at any time. But if it goes through, FTX will be officially owned by Binance, possibly marking it the biggest moment in crypto history.
On the withdrawal end, Binance has helped FTX on clearing out withdrawal backlogs. According to a Tweet by SBF, this will clear out liquidity crunches and all assets will be covered 1:1. However, some users are still experiencing withdrawal delays as shown by the comments under the Tweet.
What will Happen to FTX Users after Binance Acquisition?
Although this may seem like a big move for Binance, the outcome created a ripple effect that could potentially affect every investor in the crypto space. Good or not, only time will tell.
Binance May Damage the Long-Term Interests of Crypto
As we have learned from FTX’s downfall as well as Terra Luna’s collapse, one thing is for certain in the crypto space: nothing is certain. No one saw it coming. The same could be said about Binance as well. (https://www.blazeair.com/) That is not to say that Binance is next, but the possibility is never zero.
After all, despite Binance being a highly reputable crypto exchange and CZ’s passion and commitment to building a truly decentralized ecosystem, it is a centralized business at the end of the day. With FTX out of the equation, Binance will be the undisputed powerhouse in the crypto industry, which goes against the idea of decentralization, the core pillar of crypto. If Binance falls, the crypto market goes back to the dark ages. Gracey Chen, Managing Director of Bitget, said on Twitter that Binance’s acquisition of FTX harms decentralization and could damage the long-term interests of the industry.
Nevertheless, CZ assures the public that the business model of Binance is aligned with decentralization and puts user security first. He asserted that Binance has never used BNB as collateral for loans and has never taken on debt. He also added that all crypto exchanges should incorporate merkle-tree proof-of-reserves, since fractional reserves only work for banks and not crypto exchanges. This reflects CZ’s proactiveness in building a more secure and decentralized ecosystem.
Increased Scrutiny and Regulations on Crypto Exchanges
First and foremost, I care about clients being made whole. Investors knew what they were getting in to. The deal is sure to draw significant scrutiny. There are a lot of allegations flying around and M&A might pressure a govt move, or look like a convenient 2-for-1 opportunity. https://t.co/gctVy4NMEc
Although strict regulations could stabilize the market and protect user funds, it also limits digital freedom for retail investors as the whole point of crypto is trustless transactions without central authorities. It is basically a dilemma: too much involvement from the government defeats the purpose of the crypto space, too little breeds unregulated securities and malicious actors.
Let’s be honest, traditional banking methods are starting to lose their value. Brick-and-mortar banks are paying disappointingly low rates on savings accounts these days. So if you want a higher return for lending out your money, it might just be the right time to explore alternative routes to engage your idle cash.
More and more investors are exploring the advantages of cryptocurrency savings accounts. A crypto savings account allows you to enjoy the benefits of an old-school savings account but with the growth potential of cryptocurrencies.
In this guide, we will explore some of the best crypto savings accounts for you to earn interest with your crypto assets.
What is a Crypto Savings Account?
The concept of crypto savings accounts are similar to traditional savings accounts. You put crypto assets into your crypto savings account, which are then lent on your behalf by a third party. The difference with a traditional account is that instead of dealing with fiat currency you will keep your funds in the cryptocurrency of your preference.
If you are looking for high returns but don’t want the risk of volatility in cryptos like Bitcoin or Ethereum, you can also choose to earn interest on stablecoins that offer high rates with more stability. Stablecoins are fixed to the value of the US dollar so you will not be exposed to cryptocurrency price fluctuations.
The best crypto savings accounts offer up to 12% interest on stablecoins and lets you earn 6% interest on popular assets like Bitcoin and Ethereum.
What are the Best Crypto Savings Accounts for 2022?
With so many players in the market, it may help to compare crypto interest rates side-by-side before deciding on where to put your money. That being said, high interests should not be the only consideration for choosing a crypto savings account. Some other factors to consider are supported coins, compound interest, loan-to-value rates, withdrawal restrictions, transaction fees and security. You should always choose a platform that best fits your needs.
Let’s have a look at some of the best and most trusted crypto savings account providers for 2022.
Nexo
Nexo boasts a high yield of interest, as high as 20% APY, on a wide range of cryptocurrencies. It also has a minimum lock-up time below 24 hours, which means that the interest is paid on a daily basis. The platform also has security measures like two-factor authentication (2FA), login alerts, and withdrawal confirmation.
With no account minimums and a tiered withdrawal system, Nexo allows you to make instant transfers with no fees or restrictions. You may withdraw any amount for free up to the percentage of NEXO tokens you possess. A Mastercard debit card is also available and accepted by millions of merchants worldwide.
NEXO token owners earn bigger interest rates on savings accounts. Daily compounded interest is credited to your account, so there’s no need to wait a month to begin earning passive income.
Despite the fact that the platform is jam-packed with features, it is geared toward novices. It is simple to learn and even easier to get started.
Highlights:
Daily payouts
No minimum deposit
Tiered withdrawal limits
Clean layout and shallow learning curve
Consensus:
Best for daily interest and beginners
Gemini Earn
Since its inception, Gemini has best been known for its unbeatable high-level security. When a certain amount is deposited, a vast majority of it is stored offline, in an air-gapped cold storage system, and only a small amount is stored in hot wallets. This minimizes the chances of theft and malware attacks. Gemini also provides two-factor authentication (2FA) and bug bounty to prevent hacking. According to reports, Gemini has secured the highest amount of insurance, around $200 million.
With Gemini Earn, you can receive up to 8.05% APY on your cryptocurrency, including stablecoins. Gemini is highly rated, secure, and simple to use for basic functions like making a trade or linking to external bank accounts. There are some good educational tools available on the website and app and it also offers competitive rates, a broad variety of cryptos, and a solid yield on stablecoins.
Gemini is a sophisticated trading platform that is ideal for amateur and experienced traders and investors of all skill levels. However, the fee structure for small transactions is expensive, as is the case with most exchanges. There is no linked debit card but you can shop at a variety of internet retailers through their mobile app.
Highlights:
Most safe and secure provider
No minimum deposit
No withdrawal fee, but costly transactions fee and convenience fee
No collateral required for loans
Consensus:
Best for security
Binance Earn
Binance Earn is the one-stop crypto interest solution from Binance. With Binance Earn, you get a complete suite of staking and savings products for earning passive income on your crypto holdings without any trading involved. There are more than 60+ cryptocurrencies and stablecoins to choose from and you can earn interest under fixed or flexible terms.
Users can select between regular savings products, staking, and DeFi solutions, each with its own risks, terms, and returns. These include Savings with flexible or fixed terms, Locked Staking, DeFi-Staking, ETH 2.0 Staking, Liquid Swap, Launchpool, and the BNB yield aggregator Vault.
If you’re not interested in trading but want to increase your holdings, the interest-bearing products from Binance are worthy of choice. While the many features can be overwhelming at first, the savings and staking solutions from Binance could potentially create a passive income if you’re willing to learn how to use them.
Highlights:
Flexible and locked terms
Minimum deposits varies
Largest cryptocurrency exchange in the world
Overwhelming for beginners
Consensus:
Best for experienced traders looking for flexibility
YouHodler
YouHodler is a European bank-like crypto asset management platform with offices in Cyprus and Switzerland. The platform focuses on long-term cryptocurrency holdings, offering attractive crypto savings accounts with high compound interest of up to 12.3% APR and crypto-fiat loans with high loan to value ratios of up to 90%.
YouHodler has no lock-up periods, and investors are allowed to withdraw or sell their assets at any given time. Accumulated interest is paid out once every week, and the weekly interest period starts compounding as soon as you deposit funds into your savings account.
YouHodler keeps your digital assets secure with insurance, two-factor authentication, withdrawal stopping feature, and by using a combination of hot and cold storage. It also has bonus features like crypto-backed loans, margin trading, and it also supports NFTs.
Highlights:
Weekly payouts
No lock-up period or special tokens required to get the best rates
5 USD minimum deposit
Zero weekly or monthly fees
Consensus:
Best all-in-one
Coinloan
CoinLoan ranks next to Gemini when it comes to the safety and security of your digital assets. Apart from their security features, CoinLoan also offers about 26 types of cryptocurrencies offering APYs between 3% to 12.3%, which vary depending on the type of cryptocurrency.
Interest for crypto is accrued daily on your deposit and credited directly to your wallet on the first day of each month. There is no minimum deposit requirement.
Coinloan is a European-based cryptocurrency lending and borrowing platform licensed and authorized in the EU. For security, CoinLoan stores crypto-assets in offline, cold, multi-signature wallets with the digital asset trust custodian BitGo with $100 million worth of insurance from Lloyd’s. Furthermore, all transactions are done in accordance with Cryptocurrency Security Standard (CCSS).
Highlights:
Licensed and certified platform with fund insurance
No minimum deposit
Intuitive and easy-to-use platform
Excellent customer support
Consensus:
High yields and second best for security
Coinbase
Coinbase is one of the most well-known names in crypto wallets as well as holding and trading cryptocurrency. They also cater as one of the best crypto savings accounts for newbies. Coinbase does not loan out the currency that you invest in, and this is what makes it a great alternative to traditional banks because there are fewer restrictions when it comes to funding withdrawal.
The crypto savings account provides a wide range of currencies with small minimum deposits needed. Coinbase has a simple, top-rated mobile app with additional features. There is a wide range of beginner tutorials, crypto hints, and lessons in the app. You may also get free cryptocurrency by enrolling in certain courses.
The current APY for stablecoins is around 4% compounded monthly. Because Coinbase is said to be more rigorous in its lending procedures, the yield is relatively modest.
Coinbase charges a high 0.50% fee on every transaction, which few people are willing to pay for tiny purchases. On most currencies, interest rates are little. More experienced traders may want more sophisticated trading tools and low trade costs.
Highlights:
Well-known and trusted platform
Easy-to-use for beginners with plenty resources and tutorials
Low yields
High transaction fees
Consensus:
Best for beginners
Conclusion
Cryptocurrencies are quickly becoming mainstream, and an increasing number of providers now offer crypto savings accounts that pay monthly or daily dividends. These platforms provide a great investment opportunity for crypto owners looking for ways to generate passive income.
With such a high yield, it’s no surprise that crypto owners are increasingly demanding reliable crypto savings accounts to put their money to work for them. However, before you invest your hard-earned savings in any crypto savings account, there are many factors to consider.
If chosen wisely, crypto-based savings accounts can provide pretty good long term returns.
It all depends on the choices you as an investor make in terms of the currencies you choose, the duration and size of your investment, and your risk-taking ability.
Technical analysis made easy with bullish chart patterns packed into a cheat sheet, so that you can make better trades at Bitcoin or other cryptos!
Is Technical Analysis Useful?
Crypto, as a new asset class, is volatile in nature. Its price fluctuates because it is heavily influenced by supply and demand, and it reflects how the public feels about the asset. This is known as market sentiment — bullish when prices are rising, bearish when prices are falling.
The market is constantly changing. In many cases, it does not matter how you feel about it, it only matters how the market is going to feel about it.
Market sentiment is a critical indicator to predict price movements and make investment decisions. An easy way to gauge market sentiment is by looking at chart patterns. They tend to repeat themselves, and once you are able to recognize them, it becomes easier to strategize your entries and exits.
However, it is important to note that they are NOT a guarantee that the market will move in that predicted direction. It should only serve as a frame of reference for you to feel how the market moves.
Bullish Chart Patterns
These are some of the most common bullish chart patterns you will see in the market. This cheat sheet will help you identify real-time candlestick patterns whenever you’re on Binance, or other crypto exchanges, so that you can time your entries better.
Ascending Triangle (Bullish)
Ascending Triangle (Bullish)
An ascending triangle is a bullish pattern which signifies the continuation of an uptrend, hence “ascending” triangle. It can be drawn onto the chart by (1) placing a horizontal line along the swing highs, which is the resistance, and then (2) drawing an ascending trend line along the swing lows, which is the support.
Ascending triangles often have more than two identical peak highs which allow for the resistance line to be horizontal.
The pattern completes itself when the trend breaks through the resistance, continuing the uptrend. This signifies that the asset has a high buying pressure, and buyers are most likely opting for a long position.
Falling Wedges (Bullish)
Falling Wedges (Bullish)
A falling wedge occurs when the trend line is sandwiched between two downwardly sloping lines, getting narrower as the resistance line gets closer to the support line. In this case, the line of resistance is steeper than the support.
It may seem like a downward trend but it isn’t. In fact, it is a reversal pattern. A falling wedge is usually indicative that an asset’s price will drop before it rises and breaks through the level of resistance, as shown in the second picture above.
A falling wedge usually signals the end of the consolidation phase that facilitated a pull back lower. The consolidation phase happens when buyers regroup and attract new buying interest. It can be explained as the “calm before the storm.”
Double Bottom (Bullish)
Double Bottom (Bullish)
A double bottom indicates a period of selling in which the price drops below the level of support. It will then rise to the level of resistance, before dropping again. It resembles a W shape, hence “double bottom.” Jokingly, the W stands for “win”!
Finally, the trend will reverse and begin an uptrend as the market becomes more bullish. It may seem like a bearish trend, but it is in fact a bullish reversal pattern. This signifies the end of a downtrend and a shift towards an uptrend.
It is important to note that most traders would jump the gun by entering a position before the pattern is activated. A double bottom is active only once the buyers break the neck line and secure a close above it. This is why it is important to wait for a close above the neck line before entering the market.
Rounding Bottom (Bullish)
Rounding Bottom (Bullish)
A rounding bottom is both a bullish continuation and a reversal. During an uptrend, the price will drop slightly before rising once more. This would be a bullish continuation.
Afterwards, the bullish reversal occurs when the price is in a downward trend and a rounding bottom forms before the trend reverses and continue upwards.
Bull Flag and Pennant (Bullish)
Bull Flag and Pennant (Bullish)
A bull flag signals that the overall uptrend is likely to continue, followed by a consolidation. It resembles a flag fluttering upwards in the wind.
Usually, there will be a significant increase during the early stages of the trend, before entering into a series of smaller upward or downward movements. This would be the pennant.
Pennants can be either bullish or bearish, and they can represent a continuation or a reversal. The picture above is an example of a bullish continuation.
While a pennant may seem similar to a wedge pattern, as mentioned in the previous section, wedges are much more narrower than pennants. Moreover, wedges differ from pennants because wedges are always ascending or descending, whereas pennants remain horizontal.
Summary
These are some of the most common bullish patterns you will see in the market. This cheat sheet will help you better time your entries when the market sentiment is bullish. However, it is important to note that crypto is volatile in general.
These chart patterns are NOT a guarantee that the market will move in that predicted direction. It should only serve as a frame of reference for you to feel how the market moves.
Voyager Digital is a publicly listed crypto brokerage firm which filed for bankruptcy on 5th July 2022.
Who is Voyager Digital?
Voyager Digital was founded in 2017 as a cryptocurrency brokerage firm allowing clients to buy and sell cryptocurrencies and other digital assets on its platform. Their main feature was that they did not charge commission fees through utilizing its smart order routing to connect to dozens of other cryptocurrency exchanges and market makers. Voyager Digital is currently listed on the Toronto Stock Exchange under the stock ticker VOYG.
Voyager Digital is also a major creditor of Three Arrows Capital, which has also recently filed for bankruptcy. Since 1st July 2022, Voyager Digital has temporarily suspended all trading, deposits, withdrawals, and loyalty rewards on its platform.
Voyager Digital files for bankruptcy
Voyager Digital issued a Notice of Default against 3AC on 27th June 2022 and reduced its withdrawal limit to US$10k per day. This spooked shareholders and users of Voyager Digital. The Company saw its share prices plunge over 60% after its ties with 3AC was revealed, combined with its poor performance during the crypto downturn.
The Notice stated that 3AC failed to make timely repayments on its loan of 15,250 BTC and US$350 million USDC. However, Voyager Digital has reassured its users that its platform is still fully functional. Furthermore, as of 24th June 2022, Voyager had approximately US$137 cash and crypto assets on hand. The Company also has US$200 milllon cash and USDC, and a 15,000 BTC revolving loan from Alameda Ventures Limited.
On 5th July 2022, Voyager Digital Holdings filed for bankruptcy in the Southern District of New York. Voyager Digital estimates it has over 100,000 creditors and total debts of somewhere between US$1 to US$10 billion in liabilities. The Company believes that notwithstanding its liabilities, it still has around US$1 to US$10 billion in assets. They also assure that will have sufficient funds available for distribution to its unsecured creditors.
According to a tweet by CEO Stephen Ehrlich, the purpose of filing for bankruptcy was to “…protect assets on the platform, [and] maximize value for all stakeholders.”
This is certainly a huge relief to Alameda Research. They are listed in court documents filed by Voyager as its largest unsecured creditor with over US$75million in unpaid debts. This is substantially larger than its second largest unsecured creditor with a US$9.7million claim.
Meanwhile, the share prices of Voyager Digital Ltd (VYGVF) plummeted by almost 12% as a result of this development. Share prices for the Company took a huge hit since their involvement with 3AC was discovered. VYGVF share prices have been down nearly 89% since early June 2022.
FTX to bail out Voyager Digital?
FTX exchange recently secured a winning bid of US$1.42 billion for Voyager Digital’s assets. The assets included in the bid include (i) the fair market value of all of Voyager’s cryptocurrency at a future date to be determined, worth around US$1.3 billion; and (2) additional consideration of “incremental value”, worth around US$111 million. As for Voyager’s claims against Three Arrows Capital, this will remain with the bankruptcy estate and any amount eventually recovered will be distributed to the estate’s creditors.
The tentative plan from FTX will allow all priority claimants to be paid out in full. Meanwhile, other account holders would be able to recover approximately 72% of their account value. The plan for FTX to buy out Voyager’s assets however is still pending the approval of Voyager’s creditors and the Court.
Voyager Digital suspends withdrawals, will customers get their USD and crypto back?
According to the latest blog post from Voyager Digital, they are working to restore access to customers’ USD deposits. However, it does not mention when withdrawals will be reopened. Voyager Digital also alleged that customers’ USD in their Voyager cash account is held in a For Benefit of Customers account at the Metropolitan Commercial Bank of New York (and not by Voyager themselves) and is Federal Deposit Insurance Corporation (FDIC) insured. However, a joint letter dated 28th July 2022 from the Federal Reserve and the FDIC to Voyager requests them to remove “false and misleading” statements that its user deposit accounts are FDIC insured.
As for customers’ cryptocurrencies, Voyager states that they have approximately US$1.3 billion worth of crypto assets on their platform. This is inclusive of its over US$650million claim against Three Arrows Capital.
Voyager has proposed a reorganization plan which is currently pending the approval of the Court. Customers will be able to select the following options with regards to their cryptocurrencies held by Voyager:
Pro-rata share of cryptocurrencies;
Pro-rata share of proceeds recovered from Three Arrows Capital;
Pro-rata share of common shares in Voyager after it is reorganized; and
Pro-rata share of existing Voyager tokens.
However, according to Voyager, this is not the finalized plan. Voyager’s customers will have the opportunity to vote on whether or not they agree with the reorganization plan. It is likely that it will be a long time before customers will have their funds and cryptocurrencies returned.
Voyager details claim process for customers
Voyager’s blog post details how affected customers with cryptocurrencies in their accounts can begin to claim their crypto. Voyager will be sending an email from “Voyager Digital Restructuring” containing a unique link and personal identification number. The link will set out the customers’ account holdings. If customers agree with the account information set out in the email, they are not required to submit a claim form. On the other hand, if customers disagree with the information, or the claim is marked as “contingent”, “unliquidated” or “disputed”, they must submit a proof of claim form. This Proof of Claim form must be filed on Voyager’s case website on or before 3rd October 2022 at 5:00pm EST.
However, there is still no information on when affected customers can actually receive the cryptocurrencies locked in their Voyager Digital accounts.
Voyager customers say no to “retention bonus” totaling US$1.9 million to employees.
Voyager had asked the Court to approve a US$1.9 million payment to 38 of its employees as a “retention bonus”. The Company claims that these employees are essential to its continued operation and restructuring, and are apparently non-executive employees. Voyager is also asking the Court to allow them to redact the names, titles, salaries, proposed bonuses and other information relating to the 38 persons. Their reasoning is that this is non-public and personal information which could be sensitive.
However, a group of Voyager customers objected to Voyager’s proposal, stating that its employees are already well-compensated and that there is little evidence that they plan to resign. They also argue that the Company has otherwise done little else to reduce costs. The US Trustee’s Office is also objecting to Voyager’s proposal, particularly to the request to redact the employees’ information. This is because they see it as critical information that stakeholders should have in order to evaluate whether the proposed bonus is necessary.
On 24th August 2022, the Court ultimately approved Voyager’s application to pay US$1.9 million in retention bonuses to employees.
Aries Market is a decentralized cryptocurrency exchange built on Move, the same programming language used by Aptos to build its blockchain. Aries Market provides a wide range of decentralized finance (DeFi) products such as borrowing, lending, and margin trading on 1 single platform. Products include lending, borrowing, margin trading, swapping, and account risk management.
What is Aries Market?
Aries Market is a decentralized crypto exchange offering a wide range of DeFi products on a unified platform. On Aries Market, users can have a unified margin account on which they can borrow from various liquidity pools, earn interest on deposits, and do swaps and trades.
What products are available on Aries Market?
Aries Market is currently in a “soft launch” phase where all its features are not available yet. At present, the following products are available on Aries Market: lending, borrowing, swaps, and global account management. Notably, trading features are not yet available on Aries Market.
There are, however, deposit limits for the available asset pools on Aries Market. The limits are as follows: 4 million zUSDC (LayerZero), 4 million USDC (Wormhole Bridge), 500,000 APT, 10,000 SOL.
Aries Market
Supported assets
Aries Market currently supports the following assets: zUSDC (LayerZero), USDC (Wormhole Bridge), APT and SOL. The team expects more assets to be listed soon.
Coming soon on Aries Market
The Aries Market team expects the following features to be available in the coming months:
Full set of features will be available on Aries Market;
integration of Aries Market with Aptos; and
Gamified events and campaigns on the Aries Market and Aptos community.
Celsius Network was one of the largest gateways to crypto with $864 million worth of venture capital raised. They also had over $3 billion worth of funds held in custody for 1.4 million customers. Offering attractive yields, simple to use UI, and promises of security and transparency, it was truly the perfect crypto on-ramp for less experienced crypto users. They abstracted away the complexities of DeFi (Decentralized Finance), and offered only pure and straightforward DeFi yields.
However, their questionable asset management practices have recently come to light. Celsius Network’s risk management strategy heavily relied on continued bullish crypto narratives pushing prices upwards. Which left them unprepared for significant drawdowns. They also engaged in “degenerate trading” strategies which put them at risk of liquidation and potential bankruptcy.
Some believe Celsius will be another big platform to collapse during this bear market, potentially pushing crypto prices even lower than before. And likely resulting in a further liquidation cascade that could destroy protocols, VCs, investment funds, and others.
For another perspective on the situation on Celsius Network and how events may unfold, check out Michael’s analysis:
https://www.youtube.com/watch?v=xGbCX-AdiY4
Celsius Network – Then And Now
What is Celsius Network?
Celsius Network ($CEL) is a one-stop shop fintech app that offers the ease-of-use benefits of CeFi (Centralized Finance) with the best DeFi offerings. They are a centralized DeFi platform allowing users to deposit funds into custodial wallets on the platform. They also offered a range of DeFi services. These included token swaps, high yields on stablecoins and cryptocurrencies and crypto-backed lending and borrowing.
Celsius had a straightforward dashboard, free inter-account crypto transfers and a variety of DeFi features. Hence, Celsius managed to offer a truly incredible product to over a million customers, attracting industry respect and venture capital. So what went wrong?
The Demise of Celsius Network?
Celsius’ demise can be summed up in three parts. Firstly, its problems really started to surface during the LUNA collapse, then followed by a slow unravelling of Celsius’ overleveraged. Finally, poorly planned out WBTC and ETH/stETH positions led them to a complete lockdown of their platform.
LUNA/UST Giga Yields
Luna, through its Anchor protocol, promised a “risk-free” 20% interest on their USD-pegged stablecoin, UST. This was a highly popular product right up until its collapse. However, Celsius was also taking advantage of these high yields, which allowed them to offer high yields to customers while taking some profit.
Although this was denied by Celsisus’ founder, on-chain investigations by firms such as The Block Research, Hoptrail, and Nansen revealed that Celsius was staking up to $535 million worth of UST on Anchor protocol. Reportedly, prior to the full depeg of UST, Celsius managed to withdraw their funds with minimal damage. This left the Terra ecosystem with half a billion-dollar hole in their pockets. It seems that Celsius managed to get out of that situation mostly unscathed. However, this should’ve served as a red flag that indicated what kind of risk Celsius is willing to take on.
WBTC as DAI collateral
This one’s also pretty straightforward. Celsius used customer’s WBTC (wrapped BTC on Ethereum) as collateral to borrow DAI on the Maker protocol. This is so they could stake the DAI stablecoin for very favorable yields. Everything had been going great until BTC prices rapidly tumbled after the UST collapse. As prices tumbled, it was cheaper to keep adding collateral instead of paying off their DAI debt, losing some capital and the DAI yields. This did this likely in hope for a trend reversal or possibly a short-lived BTC relief rally. However, customers’ funds were subsidising this collateral.
stETH & locked ETH
Celsius offered their customers an attractive <8% yield on ETH while the best ETH staking deal one could get was by staking their ETH on the Ethereum PoS Beacon chain, which offers ~4.2% yield at best. So how could they possibly deliver such an incredible deal for their customers?
The solution was staked ETH (stETH) which is a liquid ETH derivative offered by Lido Finance. stETH is a fully collateralized representation of ETH staked on the Ethereum PoS Beacon chain. After the Merge, when users can withdraw staked ETH, 1 stETH will be redeemable for 1 ETH. This allows anyone to earn a yield on ETH offered by the Beacon chain without running the staking infrastructure. But, stETH’s dollar value is not pegged to ETH’s dollar-value. Also, stETH cannot be redeemed for ETH.
So Celsius was doing three things with their customer’s ETH to generate the exorbitant yields:
Lending out ETH and earning interest on DeFi protocols (27% of their total ETH);
Swapping them for stETH to generate ETH staking yields and at the same time lending out stETH to provide liquidity and earn interest on Curve Finance, a decentralized crypto exchange. (44%); and
Staking ETH on Beacon chain, rendering it illiquid for at least a year or whenever The Merge happens and the ETH gets unlocked. (27%).
The current issue Celsius is facing is the fact that while swapping an equivalent amount of ETH for stETH, stETH currently is not trading for the same dollar value as its ETH equivalent. This is due to several reasons. As a result, they’re currently in possession of roughly $0.94 for every $1 worth of ETH owed to their customers. On paper. In reality, it’s much worse than that. Celsius holds ~445k stETH, currently valued at $540 million and cannot all be swapped for ETH on the Curve Finance pool due to lack of liquidity.
So, Celsius was lending 27% of their ETH on DeFi, and swapped 44% of their ETH for stETH. However this stETH is now worth less than ETH. stETH also cannot even be fully exchanged for ETH. As a result, most of Celsius’ ETH is illiquid.
Celsius Liquidity Crisis
The situation is getting direr by the day for Celsius. Whilst BTC and ETH prices were tumbling, their ETH liquidity was drying up. Hence they had to top up their WBTC collateral several times from 22k all the way down to 14k to avoid margin calls.
To do this, they’ve put all withdrawals, swaps, and transfers between accounts on hold since 12th June 2022. Thereby completely locking users out of their assets. This was to prevent a bank run, which would’ve completely drained Celsius of their holdings.
Celsius files for Chapter 11 bankruptcy
On 13th July 2022, Celsius Network filed for bankruptcy in the Southern District Court of New York. In its announcement that Celsius had filed for Chapter 11 protection. The filing of Chapter 11 bankruptcy protection means that Celsius can continue operating its business and restructure its obligations.
The Company also states it has US$167m cash on hand to support operations during the restructuring processes. It hopes that through the process, it would stabilize its business to maximize value for all its stakeholders.
Will Celsius users get their cryptocurrencies back?
Celsius’ Directors justified its earlier decision to pause trading and withdrawals to “… stabilise its business and protect its customers”. This is to prevent customers who did not quickly withdraw their funds from being left waiting for Celsius to come up with the liquidity.
In an interview with Cointelegraph, Danny Talwar, Head of Tax at Koinly expressed concerns that Celsius may be like Mt.Gox. Mt. Gox collapsed in 2014 and users still have not seen any of their funds returned.
Celsius has not made any announcement as to whether or not they will reopen the platform to allow withdrawals. In their blog post on 14th July 2022, Celsius stated that:
“Most account activity will be paused until further notice. Withdrawals, Swap, and transfers between accounts will remain paused, and rewards will stop accruing as of the date of the filing. Celsius is not requesting authority to allow customer withdrawals at this time.”
Looking forward, Celsius “…intend[s] to put forward a plan that restores activity across the platform, returns value to customers, and provides choices.”
Celsius lawyers: Users gave up legal rights to their cryptocurrencies
Celsius Network’s lawyers stated that users with Celsius’ Earn and Borrow accounts gave up the rights to their crypto under its terms of service.
According to a tweet from Kadhim Shubber, a Financial Times reporter, Celsius Network’s lawyers stated the recovery plan would involve HODLing. They believe customers would be interested in hodl-ing throughout this bear market. Then they would realise their recovery when the market recovers.
Celsius to run out of money in October/November 2022?
Celsius was initially expected to run out of money in October 2022 according to their Weekly Cash Flow Forecast filed with the Court. However, an updated Forecast filed on 6th September 2022 shows that the Company will still have US$42 million in cash left by the end of November 2022.
Celsius weekly cash flow forecast
Profiting off the Celsius collapse? What is #CelShortSqueeze?
Twitter hashtag #CelShortSqueeze has been trending even before Celsius Network filed for Chapter 11 bankruptcy protection. #CelShortSqueeze appears to have been set up as a grassroots movement by $CEL token supporters or traders liquidated by $CEL backed loans.
The #CelShortSqueeze movement is an attempt by Celsius supporters to make it harder to short the $CEL token. This is by encouraging others to buy $CEL on exchanges such as FTX or Uniswap, and send the tokens to private wallets. The purpose of this is to take the $CEL tokens out of circulation of centralized exchanges. Hence spot short traders intending to borrow $CEL from exchanges are forced to use decentralized exchanges. This is because on decentralized exchanges, users can set the sell prices.
The #CelShortSqueeze movement seems to be effective in propping up $CEL token prices at or over 80 cents. This is despite the news of Celsius filing for bankruptcy protection. Whilst prices initially dipped to 48 cents right after news of the bankruptcy came out, #CelShortSqueeze supporters helped bring back prices to 80 cents and over.
In a win for #CelShortSqueeze supporters, prices of $CEL pumped to $1.42 on 29th July 2022, the highest in almost 1 month.
The #CelShortSqueeze movement shows what retail investors can be capable of when they band together through the power of social media. There is a lot of uncertainty right now as to what will happen to the $CEL token as Celsius Network is figuring out how to restructure and rescue the company. The restructuring process can take years and it is unknown when Celsius will re-open withdrawals to customers. So Celsius holders are certainly hoping that the #CelShortSqueeze movement does not lose steam until then.
Celsius seeks to open withdrawals for some customers
On 1st September 2022, Celsius filed a Court motion to open certain accounts for customers to withdraw their funds. However, Celsius’ motion only applies to Custody and Withold Accounts and for assets with a value of US$7,575 or less. Celsius’ Custody and Withold Accounts are basically storage wallets and users still retain legal ownership of their cryptocurrencies. In contrast, Celsius’ Earn and Borrow Accounts offer borrowing and annual crypto earnings services. If the Court grants this motion, around US$50 million (out of the US$225 million held in the accounts) will be released to customers.
Whilst some have reacted positively to this news, there are others who point out that this is hardly fair to affected Celsius users. Commentators have pointed out that in any event, under US law, Celsius is unable to avoid transferring sums under this amount if creditors so request.
Celsius co-founder declares shares “worthless“
Daniel Leon, one of the co-founders of Celsius is seeking a Court declaration that his equity in the Company is “worthless”. Leon is a substantial shareholder of the Company and holds 32,600 common shares. Shareholders make these declarations during bankruptcy proceedings when they do not think they will receive any further distribution for their holdings. The result of this declaration is that the shares can be used as a tax write-off.
Celsius will be revived as Kelvin- a crypto custody service?
According to an announcement at a Celsius employee meeting on 8th September 2022, CEO Alex Mashinsky and Head of Innovation and Chief Compliance Officer Oren Blonstein plan to revive Celsius. The plan is to launch a project called Kelvin, which will store users’ cryptocurrencies and charge fees for specific transactions.
This is a departure from Celsius’ existing business model, where Celsius does not charge any fees for transactions, withdrawals, origination, or early termination.
Latest: Celsius leaks customers’ personal data-where is the info now?
On 5th October 2022, Celsius filed publicly available court documents revealing personal data on thousands of its customers. The court documents filed by Celsius revealed, among others, customers’ names, and transaction information such as transaction amounts, times, types, and descriptions. According to Henry de Valence, Founder of Penumbra Labs, the information leaked by Celsius is sufficient to “dox all the on-chain activity” of any Celsius user by matching the dates and amounts to the blockchain transaction data.
However, this saga is far from over, as the customers’ data has recently been made publicly available on a website called Celsiusnetworth.com. The website lets people search the names of Celsius users, along with their cryptocurrency holdings on Celsius. It also included a leaderboard that listed which customers suffered the greatest losses.
Celsius executives and founders withdrew nearly US$35 million before withdrawals were frozen
As a result of Celsius’ court filings, it has been revealed that its executives had already withdrawn funds totaling nearly US$35 million in the weeks before withdrawals on the platform were frozen. Filings revealed that ex-CEO and co-founder Alex Mashinsky withdrew around US$10 million from the Celsius platform in May 2022. Meanwhile, co-founder and former chief strategy officer Daniel Leon withdrew around US$7 million, and current chief technology officer Nuke Goldstein around US$550,000.
Celsius paused its withdrawals weeks later in June 2022 before filing for Chapter 11 bankruptcy in July.
A spokesperson for Alex Mashinsky states that the US$10 million withdrawal was planned even before Celsius intended to pause withdrawals, as the funds were used to pay taxes. Also, Mashinsky’s family still had US$44 million worth of cryptocurrencies frozen on the Celsius platform.
Conclusion
What becomes of Celsius going forward is unclear. However, what is clear is that time and time again we get to witness the extreme importance of the age-old rules of crypto – be wary if something seems too good to be true, and never put in more than what you can afford to lose.
It is easy to become swept up in the hype, so doing your own research is incredibly important. Thinking critically and understanding the fundamentals can help you avoid a lot of heartache in the future.
Everyone loves a good comeback story. With Luna Classic now in the hands of the community, they are doing everything in their power to revive the ecosystem. Several crypto heavyweights such as Binance have also joined their cause. The question is, “will Luna Classic succeed long-term?” In this article, we will take a look at the recovery plan proposed by the Classic community and share some insights on the future direction of Luna Classic.
History of Terra Luna
The collapse of the Terra ecosystem in May 2022 was one of the most devastating black swan events in crypto history, wiping at least $60 billion off the market which triggered a dangerous domino effect across the industry such as the fall of Three Arrows Capital and Voyager Digital.
Terraform Labs (TFL) developers shortly abandoned the Classic chain in support of Luna 2.0, the new Terra blockchain. This led to an overhaul of the community demographic, leaving only the validators and true believers of Luna Classic behind, not to mention millions of investors who are still holding onto LUNC or USTC with no exit opportunity.
Luna Classic’s Chance at Redemption
Despite its unfortunate history, there might be a glimmer of hope for Luna Classic. The technology and blockchain infrastructure are still there, and developers can still build on it. In fact, there are numerous DApps that have expressed an interest to return and build on Luna Classic. However, the ecosystem faces the opposite problem of most layer-one protocols. Instead of incentivizing user adoption with tokens, Luna Classic has hundreds of thousands of active users but no additional token incentives.
This means that Luna Classic’s native tokens do not offer much utilities for developers to build off of, due to trillions of LUNC tokens in circulation and the USTC depeg. Therefore, in order to attract developers and builders to the Classic chain, the token situation must be addressed, and that is exactly what the community is doing right now.
Luna Classic – Community-Driven Blockchain
Community volunteers have self-organized into multiple groups to help build and restore the Luna Classic blockchain. Terra Rebels is one of the larger communities with seasoned developers and business professionals that is leading the recovery plan. None of the groups have any affiliation with TFL nor work under any central organization or established entities at this time. Essentially, the communities are filling the developer void impartially and in accordance with community proposals that pass the voting process. All codes are open to audits and feedbacks, and all community members have a say in vetting and implementing the code base.
On August 26th 2022, after two months of disabled proof-of-stake validation in response to the collapse, governance was restored as citizens of Luna Classic could delegate, stake, and vote for the future of the ecosystem. As of now, proposals and the associated implementations are being passed by the Terra Classic Decentralized Autonomous Organization (DAO). When adopted, a new wave of delegators and validators from the community would stake on Luna Classic, built by community developers. This would be the beginning of a truly community-driven blockchain, but the path to that is still long and arduous.
Recovery Plan of Luna Classic
Deflationary Token Mechanism (Tax and Burn)
On September 15th 2022, Terra Classic governance proposal 4661 passed with a 99.88% “yes” vote to enable a 1.2% tax and burn on all on-chain transactions. With more than 6 trillion LUNC in circulation, the main goal is to reduce the hyperinflated total supply until it reaches 10 billion LUNC. After that, the mechanism will be disabled via smart contract, and the total supply will not be changed. Based on the law of supply and demand, this creates scarcity which inherently increases the value of LUNC tokens. However, it takes more than just burning for LUNC to maintain a relatively stable price. There has to have a mechanism for LUNC to capture some of the value brought to the blockchain, otherwise it would be another exit race for all investors.
The main concern for the tax and burn is that it would likely reduce on-chain activities, as core users and projects are affected. Terra Rebels addressed this in their white paper, stating that the community can structure the implementation to be flexible as time progresses. The tax rate can be changed via parameter proposal at any time and adjusted after every epoch. Nevertheless, the community has voiced with unity that they are willing to play their part.
The bigger play here however is to reach out to major centralized exchanges (CEX) and implement the same tax and burn for all LUNC trades on their platform, since it only applies to on-chain transactions. As a result, several major CEXes such as Binance, KuCoin, Kraken, Huobi, MEXC Global, and more have joined the cause. Moreover, a petition has been filed on change.org to relist LUNC on Coinbase. It is important to note that the Terra ecosystem is still under strict government regulations as a result of the collapse. But if it succeeds, the help from the U.S. market would greatly accelerate the burning process.
This goes to show the power of a unified and driven decentralized community, and perhaps the potential crypto heavyweights see in a Luna Classic comeback.
USTC Repeg Proposal
In October 2022, two factions of the Terra community proposed their own approach to repeg USTC. As both plans are new, there are no specific timings outlined. It is up to the community to debate these proposals and decide which approach is better.
The first one jointly published by Alex Forshaw, Edward Kim and Maximilian Bryan presents the idea of minting 500 million LUNC to purchase Bitcoin as collateral for a new algorithmic fungible token (AFT) called USTN. The whole point of it is for current USTC holders to receive compensation meaningful relative to the current USD value of their holdings, making them as whole as possible under current legal constraints. It is akin to a debt-for-equity swap in traditional finance.
However, this proposal was met with a lot of criticisms from the community, since minting more LUNC defeats the purpose of the tax and burn initiative. Although it would create a short-term growth cycle, it would most likely be unsustainable medium to long-term, due to the oversupply of LUNC.
Shortly afterwards, Forshaw announced that the updated plan will not involve minting LUNC. Instead, USTN’s Bitcoin collateral will be managed by a tranche-based decentralized reserve system as outlined in section 5 of their original white paper. However, most of the community still do not like the idea of creating a new token. Why not just create mechanisms around USTC, bringing value to the ecosystem, instead of phasing it out? This is where the second proposal comes in.
Proposal #2 – Quantitative Tightening to Incentivize New Businesses
In response to Forshaw’s proposal, core developer Tobias Andersen (aka Zaradar) developed a different solution that focuses on improving USTC, instead of substituting it. Andersen believes that a USTC repeg could be accomplished by incentivizing new businesses to use Luna Classic’s existing blockchain infrastructure. The plan to achieve this however is a more “painful” journey as quoted by the author, but is more organic and sustainable in the long run.
The plan adapts a form of quantitative tightening (QT), a traditional finance technique used by central banks to decrease liquidity in the economy. For Luna Classic, it would involve installing burn taxes and increasing interest rates on staking rewards. Rewards would be lowered and lock-up periods increased. The whole point is to significantly reduce the circulating supply of both USTC and LUNC, making the value networks sustainable long-term.
As for incentivizing new businesses on the blockchain, the features include partitioned pools, where DApps can create their own commodity token which is captalized via LUNC and traded via USTC. Based on each pool, this brings another utility to USTC as a “value transfer”, with investors using the stablecoin to swap between pools. To help keep partitioned pools stable, a swap tax is applied when commodity tokens exit the partitioned pools into USTC. This process would be measured and regulated by the ABS keeper, which is a range of volatility guards and tax policies governed by the DAO.
However, some things are unclear in the proposal. Andersen did not explain exactly how a successful implementation of these would help USTC regain its peg, and more importantly maintain the peg. He only explained a way to appreciate the price of USTC with increased network activity on the blockchain. Unless there is a way to successfully prevent another death spiral, we would see $10 billion worth of USTC debt tear down any bull run with an avalanche of speculative mercenary capital.
Rebuilding the Project Ecosystem
In order to restore DApp and project support on the Luna Classic, Terra Rebels will restore inter-block communication (IBC) between Osmosis and Terra, re-enabling and unlocking the transfer of token and data between chains. Currently, more than 150 million USTC is stuck in Osmosis alone. Opening up the channel will allow users to transfer funds from Osmosis’ LUNC and USTC liquidity pools for use in other DApps.
Moreover, on June 24th 2022, Terra Rebels launched “Rogue-1” TestNet to test governance parameter proposals and ensure the tax burn code is working. It also has the necessary upgrades in Cosmos smart contracts and IBC to communicate with the rest of the Cosmos ecosystem. Based upon the Luna v2 core, other projects built on Luna v2 will not require additional development as it is compatible with both blockchains. The core implementation is expected to be completed in 2023.
Verdict on Luna Classic Comeback
For Luna Classic, there is a sense of justice that is unprecedented in the history of crypto. People around the world have literally lost their life savings because of the collapse. Similar to how volunteers help rebuild communities who were hit by natural disasters, we are seeing the crypto community and even crypto powerhouses step in to help revive a project with a failed reputation and fix a problem they did not create.
There is a reason why LUNC is still performing relatively well, ranking top 35 in market cap at the time of writing. Whereas LUNA is barely in the top 100, since it is more associated with Do Kwon and the TFL. This goes to show that the Classic chain is entirely governed and driven by the community, which is the essence of decentralization in the first place.
Despite the communities’ effort, there is no way to be sure that the comeback of Luna Classic is written in the stars. As of now, the proposed plans of the community solely focus on reducing the hyperinflated token supply and attracting new businesses to the blockchain. And even if Luna Classic does make a comeback, we cannot know for certain that their token price and network activity will remain stable long-term. But it is reasonable (or optimistic) to assume that the plans being debated and deployed now are just the first step to recovery.
Out of all blockchain attacks, cross-chain bridges are one of the most targetted ones. Just last week, Binance lost $570 million as a result of an exploit on Binance Smart Chain’s Token Hub Bridge. Even Binance, one of the world’s secure and reputable cryptocurrency platforms, fell victim to a cross-chain bridge hack. This brings us to an important question: why do cross-chain bridges keep getting hacked, and why do people still use them despite its security risk?
One of the biggest limitations of blockchains has been their inability to work together. Each blockchain has its own protocols or smart contracts that are not compatible with other blockchains on a programmable level. As a result, you cannot spend Bitcoin in the Ethereum network, for example. This is where cross-chain bridges come in to provide interoperability.
A cross-chain bridge connects two blockchains, enabling users to transfer data and liquidity from one chain to the other. It also allows users to access new protocols on other chains, making it so that developers from different blockchain communities can collaborate together. Moreover, with Lego-like composability of decentralized finance (DeFi) applications, cross-chain bridges can potentially open up a whole new world of efficient and creative financial services and products for users.
Without cross-chain bridges, the crypto industry would be bottlenecked by network congestions, since there is no bridge to off-load data and transaction executions.
Why are Cross-Chain Bridges Vulnerable?
When you bridge an asset to another blockchain, it is not exactly “sent.” Instead, through smart contract execution, the assets are first deposited, locked, or burned on one blockchain. Afterwards, they are then credited, unlocked, or minted on the other blockchain in the form of a wrapped token.
However, this asset conversion is not guaranteed. This is because cross-chain bridges are independent entities that do not belong to any blockchain. This means that no blockchain can verify that any asset is bridged, since they cannot access off-chain information. The bridging process mainly relies on two parties to ensure successful transfer:
Third-party oracles who interpret off-chain data for on-chain use.
Validators or custodians (DAO or smart contract) who safekeep the original asset and release the wrapped asset.
As you can see, there are several layers of trust, not just during the token swap but throughout the entire bridging process. Users must additionally continue to trust that they will be able to bridge the wrapped token back in the future on a 1:1 basis. Herein lies the vulnerability of cross-chain bridges: with multiple processes and third-party involvements, there is a brief window of time where hackers can target any one of these actions in isolation, not to mention possible bugs or flaws in the smart contract coding in which hackers can exploit.
How are Cross-Chain Bridges Hacked?
A successful cross-chain bridge hack typically ends up with tokens being minted on one blockchain without a corresponding deposit on the other. There are three types of exploits to achieve this:
Fake Deposits
During the bridging process, each deposit has to be validated before allowing a transfer to go through. If a hacker can create a fake deposit that validates as a real one, they can trick the system into minting free tokens without putting in any money.
This mostly happens due to a flaw in the logic of the smart contract coding, where both tokens share the same proof of event. This would allow the attacker to call the function to deposit one token with fake data that can generate proof to withdraw the other token on the other blockchain.
This is what happened to Binance when the attacker managed to forge proof messages of non-existent tokens that were then accepted by the BSC Token Hub bridge.
Signature Verification Bypass
A digital signature is a process to verify transactions, using the private key to sign the transaction and its corresponding public key to authorize the sender. However, if the smart contract uses an outdated function, it may not be able to verify the correctness of certain instructions. As a result, an attacker could create an input account with malicious data to spoof previously valid digital signatures. This would allow them to bypass the verification step and generate proof messages to mint free tokens.
The Wormhole hack is an example of this attack, where the hacker bypassed the verification step by injecting a spoofed SYSVAR account, enabling them to freely mint 120,000 wETH (worth $326 million at the time).
Validator Majority Attack
Some cross-chain bridges have validators that vote whether or not to approve certain transfers. Similar to a 51% attack, if an attacker controls a majority of the validators, they can approve any transaction, allowing them to withdraw free money. An infamous case of this is the Ronin Network hack, where the attacker took control five of the nine validator nodes and stole $620 million.
Magic Square is one of the upcoming projects that is highly anticipated by the crypto community. Imagine Apple’s App Store or Google’s Play Store integrated with blockchain technology and driven by the community. This web3 solution offers a way to simplify crypto applications hence driving adoption, creating one integrated ecosystem for all crypto apps and activity.
Magic Square’s innovation has gained the attention of many heavyweights in the crypto industry including Binance, KuCoin, and DAO Maker. All you need to know about Magic Square is in this article, made simple to understand and updated in real time.
What is Magic Square (SQR)?
Magic Square is more than a web3 app store hosting a multitude of decentralized apps (DApps) such as DeFi, NFTs, and GameFi. In fact, Magic Square has their own ecosystem which allows any user to earn crypto from using the app. We will explain this in detail later.
But first it is important to understand why a project like Magic Square might just be the missing link in driving crypto adoption.
However, with so many crypto apps scattered on the market, there is no established platform that can host them all in one place. As a result, navigating in the crypto space can be a chaotic and cumbersome experience for both users and blockchain developers alike.
For users, there is no all-in-one platform where they can easily discover, access, and manage vetted crypto apps.
For developers, there is no real multi-chain service that allows them to monetize their apps and market them to users.
Magic Square’s Solution to Web3 Pain Points
Magic Square has a built-in Decentralized Autonomous Organization (DAO) structure in which all users and developers have a say in the DApp quality control and listing process. This means that the app store is governed by the community, and they are incentivized to vet all DApps coming through the platform. Based on the principles of decentralization, this provides a secure environment for all users to engage with the listed DApps on Magic Square, as low quality projects and potential scams are filtered out, similar to how invalid Bitcoin transactions are rejected by the miners.
All in all, a decentralized crypto app store powered by the community as well as providing useful tools for blockchain developers could be the key to organize all DApp activities in one established platform. This would help bring order, ease, and trust to the crypto app space, which would help develop the infrastructure that powers the growth and success of the crypto industry. Now, let’s take a look at the key features of Magic Square and how their ecosystem functions as a whole.
Key Features of Magic Square
Magic Store& Magic Spaces
Magic Store is where users can browse and download DApps, similar to Apple’s App Store or Google’s Play Store. Within Magic Store, users have a personalized dashboard called Magic Spaces where they can access all of their DApps and track their app activity in one place. By clicking on the DApp, it will be opened inside the tabs within the user’s personal space. This is a convenient feature as users do not need to switch between websites or crypto apps on their device. Additionally, Magic Spaces is fully synchronized across all devices, including desktops, web browsers, and mobile devices.
MagicID(SSI & DIDs Technology)
Users do not have to give up control of personal information to centralized databases like Apple or Google. Thanks to MagicID which is their Self-Soverign Identity (SSI) and Decentralized Identifiers (DIDs) technology, Magic Square ensures that the verifiable credentials a user has can only be shared with DApps or other users they deem trustworthy.
SSI allows users to use their digital wallet and authenticate their own identity using the credentials they have been issued. This works in conjunction with DIDs, which creates unique, private, and secure peer-to-peer connections between two connection points. Users know who they are connecting with and vice versa, and no third party can interfere in any way. The platform only collects and aggregates on-chain data about users’ app activities, which they can provide relevant and up-to-date information for users, similar to YouTube’s algorithm. Magic Square does not hold any personal data of their users.
Magic SDK
Magic Square is developing their own SDK that allows developers to enhance their development process in various ways. Its tools are built to optimize payment system with subscription model, wallet infrastructure, trading data aggregation, on-chain data, Automated Market Making (AMM) solutions, in-app token and NFT staking, community management, and more.
Magic SDK supports common programming languages such as Java, Node JS, C++, which is easy to use for all levels of developers. In addition, the SDK is open-source, allowing every developer to add new tools that can be used by the community of developers. These tools would be vetted by certified auditors to ensure security. For more information on Magic Square’s SDK and their technical product description, their white paper is available.
Cross-Chain Bridges
Magic Square will implement cross-chain bridges using deBridge technology, allowing users and developers to transfer data and liquidity across different blockchains and protocols. This can help developers integrate their DApp from different blockchains into Magic Square. Moreover, its cross-chain functionality allows for integrated DeFi solutions in Magic Square, which we will talk about next.
Integrated DeFi Services
Magic Square’s business model is based on revenue sharing with all pre-integrated CeDeFi solutions that will also be available to the community. These solutions include token/NFT staking, custody services, AMM pools, payment, lending, swaps, and insurance. They will be fully integrated into all DApp pages, supporting their native currencies and protocol. That way, users do not need to leave the app to access related DeFi products and services.
Moreover, any third party DeFi provider can apply to add their service in Magic Square. If they are approved by the community, their service will be added to the catalog of DeFi services in which DApp developers can use to add on their app page. For each transaction with a third party solution, Magic Square will charge payment based on transaction cost charged by the third party. This revenue will then be shared with the DApp developers, even free-to-own DApps can earn money this way.
This is how Magic Square makes money and how they fund their community reward pools to distribute SQR tokens to users, which we will cover next.
How to Earn on Magic Square?
Magic Square Token (SQR) – Utilities
The Magic Square (SQR) token is the primary unit that powers the ecosystem. Within the ecosystem, there are three types of members that play a vital role in running Magic Square: (1) users, (2) validators (3) creators. Each of them also has different ways to earn SQR tokens.
Users
Anyone who interacts with the DApp store is considered as a user. Magic Square’s core model “use-to-earn” distributes SQR tokens for all users for their in-app activities, which include downloads, comments, ratings, follows, shares, reviews, and using DApps. Individual DApps can even reward users for reviews with their own native app token, giving users the ability to earn double.
The SQR token rewards are based on the personal ranking of the user which is called “Magic Karma.” All in-app activities are summarized and quantified on a daily basis in the Magic Karma score. The higher the user’s score, the more rewards they can earn. As cited in their lite paper, users can “earn SQR tokens without investing their money, just their time.”
Users can also stake SQR tokens to unlock different levels of Packages which grant them additional perks. “Base Package” requires 150 staked SQR for unlimited DApp downloads. “Pro Package” requires 500 staked SQR for daily rewards and referral bonuses. Lastly, “Influencer Package” requires 1000 staked SQR and a high Karma score to unlock daily reward boosts and access to Magic Square events and exclusive contests etc.
Validators
To fill the role of Apple/Google engineers, Magic Square has validators to determine which DApps to feature in the store. There are three types of validators: (1) qualified validators, (2) nominees, (3) standard validators. Although all community members are eligible for these roles, there are certain conditions that must be met.
To become a qualified validator, you must stake 5,000 SQR tokens, and pass a qualification test to demonstrate your level of knowledge and competency. Qualified validators can also transfer validating rights to nominees. However, nominees must also pass the qualification test, but do not need to stake SQR tokens. On the other hand, any user can register as a standard validator without passing the qualification test or stake SQR tokens.
80% of the DApp creator’s validator fee is rewarded to qualified validators, which a portion of it is also shared with the nominees. The remaining 20% is rewarded to standard validators.
Creators
All DApp developers and their project team are considered as creators. For creators to have their DApp listed on the Magic Store, they would have to send 10,000 SQR via smart contract, where 35% is paid to validators, 15% is paid to Magic Square, and 50% is staked for the period the DApp is listed in the Magic Store.
From the list of pre-integrated DeFi services, creators can choose to add them in their DApp page, allowing them to manage their liquidity through in-store interaction. With a higher rate of DeFi adoption by users, creators can efficiently engage with their target audience and increase market penetration.
Furthermore, each newly listed DApp can apply for a grant of up to 200,000 SQR tokens to be used by the creators to build and improve their product. However, creators must first stake the number of SQR tokens to match the amount they are requesting, for 12 months. The grant would be decided through voting processes by the validators.
Who is the Team behind Magic Square (SQR)?
Magic Square is co-founded by Andrey Nayman (CEO) and Benjamin Vodovozov (CMO), both who are seasoned entrepreneurs and mathematicians who have decades of experience in quantitative analysis and performance marketing.
The team consists of a first-class group of industry professionals, blockchain veterans, software developers, and crypto enthusiasts. Their goal is to gradually influence a widespread organic shift to the web3 space, and they aim to achieve that by developing infrastructures that power the growth of the crypto app ecosystem.
What’s Happening with Magic Square (SQR)?
In July, Magic Square concluded a $3 million seed round investments with an evaluation of $30 million, led by Binance Labs and Republic Capital. Mia Mai, Investment Director at Binance Labs, commented that they see potential in Magic Square, especially in their user-friendly designs and business model as a Web3 DApp store. They believe that the product suites of Magic Square can potentially be the driving force of Web3 ecosystem mass adoption and implementation.
Magic Square is definitely bringing something new and innovative to the crypto space. Its product could essentially organize all DApp activities that are scattered throughout the market, making it easily accessible to crypto users and newcomers. Magic Square published their roadmap, stating that their token will be released in Q1 2023. We are now witnessing many crypto heavyweights such as Binance recognizing the potential of Magic Square and their ability to drive mass adoption through simplicity.
Based on principles of cryptography, decentralization and consensus, blockchain technology offers one of the strongest securities against traditional cyber attacks. However, it is not foolproof, even the strongest blockchains like Bitcoin and Ethereum have inherent vulnerabilities due to their infrastructure. In this article, we will look at the different types of attacks possible on a blockchain.
51% Attack
What is a 51% Attack?
A 51% attack, also known as a majority attack, is when a single person or a coordinated group controls over 50% of the hashing power on proof-of-work blockchains OR more than half of the validating power (staked cryptocurrencies) on proof-of-stake blockchains.
How does a 51% Attack work?
Since transactions on a blockchain are validated via consensus, owning 51% of the blockchain’s hashing power or staked crypto gives the attacker majority rule, effectively allowing them to take control of the network. In such a scenario, the attacker has the final say in the validation process, even if the other 49% are against it. This potentially causes network disruption in a number of ways:
The attacker could reverse their own transactions, leading to a double-spending problem.
They could rewrite parts of the blockchain protocol, deliberately modifying the ordering of certain transactions.
They can even prevent some or all transactions from being confirmed, denying other miners or validators from earning rewards, which results in a monopoly.
Limitations of a 51% Attack
On the other hand, a 51% attack does have its limits in the amount of disruption it can cause. While the attacker could reverse their own transaction, they cannot reverse other users’ transactions on the network. Moreover, given the immutable nature of the blockchain, the attacker cannot alter the functionality of block rewards nor create coins out of thin air (unless there is a bug in the smart-contract coding).
How likely will a 51% Attack happen?
While possible, a 51% attack is unlikely as it is extremely expensive to execute. Owning more than half of the network’s computing power or staked crypto could potentially cost millions or billions of dollars depending on the user population of the blockchain. This is why the bigger the network, the stronger the protection. A majority attack is virtually impossible to occur in leading blockchains such as Bitcoin, Ethereum and Binance Smart Chain.
But it is worth noting that the blockchain should be truly decentralized, on top of having a large userbase. This is because organizing a 51% attack would most likely be a coordinated effort. If several malicious actors collude and pool their resources together, then the network would be more centralized, which could potentially lead to a majority attack. This is more prevalent amongst smaller altcoin blockchains. Ethereum Classic (ETC), Bitcoin Gold (BTG), and Verge (XVG) were notable victims of the 51% attack.
Sybil Attack
What is a Sybil Attack?
A Sybil attack is when an attacker uses a single node to create and operate multiple fake accounts in order to gain disproportionate influence over decisions made in the network. It is a smaller variation of a 51% attack. The main difference is that a Sybil attack largely focuses on manipulating the number of accounts or nodes rather than already owning them. It also targets smaller areas in the blockchain, whereas a 51% attack is capable of taking over the entire network. However, in some cases, a successful large-scale Sybil attack can transition to a 51% attack.
The word “Sybil” derives from a case study about a woman named Sybil Dorsett, who was diagnosed with a Dissociative Identity Disorder, also known as Multiple Personality Disorder.
How does a Sybil Attack work?
A Sybil attack is quite difficult to detect and prevent, because most public blockchains do not have trusted nodes due to its decentralized nature. This means that the system perceives all nodes and accounts as real, even the fake ones. There are two scenarios of a Sybil attack:
By creating numerous fake identities (or Sybil identities), the attacker will have enough capacity to out-vote the honest nodes on the network, allowing them to perform unauthorized actions in the system.
The attacker can also control the flow of information in a network. If the attacker manages to obtain information about your IP address, they can create many fake nodes to surround you. They can then prevent you from receiving or transmitting blocks, effectively blocking you from using the network.
How to prevent Sybil Attacks?
Although a lot of time and research went into figuring out a way to detect and prevent Sybil attacks, there is still no guaranteed defense as of today. But there are some ways to help mitigate Sybil attacks:
Identity validation techniques such as phone number, credit card or IP address verification can help reveal the true identity of hostile entities. This is a secure way to suss out fake accounts or bots for most types of peer-to-peer networks. However, this relies on a central authority to perform these identity validations which sacrifices anonymity for accountability. Moreover, this means that the validation authority could become a target for attack.
Social trust graphs, on the other hand, can limit the extent of damage by a specific Sybil attacker, while maintaining anonymity. You can analyze connectivity data in social graphs like SybilGuard or SybilLimit to identify suspected Sybil clusters in distributed systems. But this technique is not perfect either, as small-scale Sybil attacks are more difficult to detect.
Blockchain Denial of Service Attack (BDoS)
Denial of Service Attack (DoS)
Before we go into Blockchain Denial of Service attacks (BDoS), let’s take a look at its predecessors.
Traditionally, a Denial of Service attack (DoS) or a Distributed Denial of Service attack (DDoS) when multiple computers are involved, is a malicious attempt to disrupt real users’ access to a website or network service by overloading its servers with a massive amount of traffic, causing the website or application to slow down its functionality or even crash entirely.
But for blockchains, a DoS or DDoS attack is difficult to execute, especially if the network’s userbase is large and decentralized. This is because a decentralized network distributes computing power worldwide, eliminating single points of failure such as servers or apps. Even if several nodes are down, the blockchain is able to continue operating and validating transactions, unless…
What is a Blockchain Denial of Service Attack (BDoS)?
With the rise of blockchain technology, a new type of DoS attack emerged — a Blockchain Denial of Service attack (BDoS). These attacks focus on the protocol layer of a blockchain, usually PoW blockchains, with the biggest threat being transaction flooding.
Since most blockchains have a fixed block size, there is a limit to how many transactions can fit into a block. Attackers can exploit this by spamming transactions to the blockchain, filling the blocks to prevent legitimate transactions from being added to the chain. The legitimate transactions remain in the public mempool waiting for the next block.
How to prevent a Blockchain Denial of Service Attack (BDoS)?
Penetration testing is a core security auditing process that helps identify potential vulnerabilities before the mainnet is deployed. By simulating in-dept attacks, penetration testing offers traffic analytics tools that can help blockchain developers spot some of the telltale signs of a DoS attack such as unusual traffic patterns from a single IP address or IP range.
