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  • Will DEXs Take Over Centralized Exchanges after FTX Collapse?

    Will DEXs Take Over Centralized Exchanges after FTX Collapse?

    “Not your keys, not your crypto” — this decade-old mantra has taken full effect after the FTX collapse. Crypto users have lost faith in centralized exchanges (CEXs) and are migrating to decentralized exchanges (DEXs) instead. Though a non-custodial option seem to be an ideal solution, it would likely take a long time until price discovery shifts from centralized to decentralized platforms. Let’s take a closer look.

    Impact of FTX Collapse on Centralized Exchanges

    Almost every centralized platform in the crypto industry had done business with FTX, and some companies bore the brunt of the collapse such as BlockFi, Genesis Trading, and KuCoin. Crypto users around the globe found they could no longer withdraw assets from several crypto exchanges as the contagion spreads.

    FTX’s collapse is a symptom of a problem inherent to centralized exchanges, also known as custodial exchanges. Customers’ tokens parked on the platform are exposed to the risk the exchange could go bust. Because crypto has no government depositary schemes to cover losses, customers of insolvent exchanges must wait for bankruptcy courts to regain what remains of their funds — if there is any left after other investors claim their share.

    Given the circumstances, all crypto exchanges including Binance have been implementing proof-of-reserves to verify they have enough assets to cover all customers’ funds. Though it is a good transparency initiative, investors still fear for the safety of their funds. As a result, many CEX customers rushed to withdraw their funds, opting for non-custodial solutions. This is where DEXs come in.

    Rise of Decentralized Exchanges after FTX Collapse

    Soon after FTX’s downfall, decentralized exchanges saw a vertical spike in trading volume. According to DeFi Llama, the monthly DEX volume showed an increase of 80% from $57.6 billion in October to $103.8 in November. At the time of writing, Uniswap had the largest trading volume with 60%, followed by Curve (9.6%), PancakeSwap (9%), DODO Exchange (8%), and Balancer (3%).

    Monthly DEX Trading Volume (Source: DeFi Llama)

    Moreover, Uniswap also surpassed Coinbase in daily ETH trading volume on November 14 ($1.1 billion vs $600 million). This is significant as CEXs have always been dominant in trading large market cap coins given their deep liquidity. It strongly indicates traders are moving away from CEXs.

    This is compounded by the fact that Bitcoin (BTC) has been exiting CEX wallets at a record pace. According to on-chain data analytics Glassnode, BTC withdrawals from CEX to self-custody wallets is unfolding at a historic rate of 106k BTC monthly. This accounts for $3.7 billion worth of Bitcoins over the past week. Simultaneously, hardware wallet providers such as Ledger and Trezor reported its highest sales day. Check out some of these wallets:

    Advantages of Decentralized Exchanges

    Decentralized exchanges, also known as non-custodial exchanges, are decentralized finance (DeFi) protocols that allow users to trade directly with other users via smart contracts, without handing over management of their funds to an intermediary or custodian.

    They are non-custodial, which means users have full and exclusive control of their wallet’s private keys. This is the opposite of putting your assets on CEXs as they hold onto the wallets and keys on your behalf. This feature makes it impossible for centralized players to siphon user funds, and is why people are doing their trading on DEXs instead.

    Transactions on DEXs are facilitated through the use of smart contracts, and liquidity pools are funded by other users. As such, there is significantly reduced counterparty risk — you do not need to trust other users, only the code. There are three types of DEXs that uses different protocols: automated market makers (AMM), order book DEXs, and DEX aggregators. But they are all programmed to determine the best price for an asset, all while offering a better rate for users compared to CEXs.

    Moreover, anyone can earn passive income if they provide liquidity to the protocol. On the other hand, CEXs are managed by a centralized organization such as a bank or a small handful of professional trading firms or market makers. In this case, since liquidity is concentrated in these actors, CEX maker and taker fees are much higher than DEX swap fees. Additionally, they can also choose to withdraw their assets during periods of volatility, restricting trades when users need it most.

    Challenges Facing Decentralized Exchanges

    Despite the many critical advantages DEXs offer, it has several downsides that hinders widespread adoption:

    Relies Heavily on Centralized Exchanges

    Most DEXs are dependent on price oracles (i.e. Chainlink) that source data from CEXs. As such, an attacker can manipulate the price of an asset on a particular DEX, leading to inaccurate price data being fed to all protocols which rely on that DEX as a price oracle.

    A flash loan attack is a common method to trick price oracles. In such events, attackers essentially create false arbitrage opportunities by instantaneously borrowing, swapping, depositing large numbers of tokens, tricking price oracles that the target token’s price is being moved on a single exchange.

    This creates a disparity which can then be arbitraged, allowing the sale or purchase of assets at above or below market price. Polygon’s Quickswap was a victim of this attack in October 2022.

    DEX Transactions are Slower than CEX

    Trading on DEXs are often much slower because all trades take place on the blockchain. It takes time for blocks to be validated and transactions to go through. On the other hand, CEX trades are almost instantaneous because they take place on proprietary matching engines instead of the blockchain. These engines are complex software that synchronizes and combines data from thousands of trading pairs at the same time.

    Liquidity Issues and Impermanent Loss

    DEXs cannot yet compete with large CEXs in size as they cannot offer as much liquidity. When they do not have enough liquidity, large orders can incur slippages in which the buyer pays above-market prices on their order. As such, a lack of liquidity can deter institutional participation as large orders are likely to suffer from slippage.

    On another note, liquidity providers are exposed to a risk of impermanent loss when depositing two assets for a specific trading pair. In most cases, liquidity providers end up withdrawing more of the token that lost value and less of the one that gained value because the ratio of tokens held in the pool changes as trades occur.

    Smart Contract Vulnerabilities

    Although there is significantly reduced counterparty risk when using DEXs, there is still the issue of smart contract vulnerabilities that can be exploited by hackers. Smart contract codes are publicly available and anyone can review their code. Therefore, exploitable bugs can still slip past audits and other code reviews.

    This is a problem inherent to all DeFi protocols. Over the past two years, we have seen numerous hacks on cross-chain bridges, hot wallets, staking platforms, and even entire blockchain infrastructures.

    See also: 10 Best Smart Contract Security Auditing Firms in 2022

    Future Landscape of Crypto Exchanges

    In the wake of FTX’s collapse, users’ confidence in centralized exchanges are waning and the crypto community expects a shift toward decentralized platforms. However, according to JPMorgan and several other financial analysts, centralized exchanges will continue to control the majority of global digital-asset trading volumes. Although DEX trading volume has surged over the past month, it is a possibility that it reflects the automatic liquidations following the FTX collapse, and does not indicate the start of a long-term trend.

    DEX users are still confined to a relatively small base of niche traders and investors, and their interfaces can be difficult to navigate. At this stage, CEXs still provide a better user experience, fiat gateways, and deeper liquidity. To date, Uniswap has a total of 4.5 million users cumulatively, whereas Coinbase has a total verified user base of 108 million.

    With that being said, DeFi is still in its infancy. Development in liquidity protocols, safekeeping mechanisms, and user interfaces is needed to fully realize the potential of non-custodial trading services. As long as DEXs can compete with CEXs in terms of liquidity and speed, we may start to see widespread adoption or even a full-on switch to DEXs. After all, decentralized infrastructures are key to preventing centralized collapses, something we, as the community, has had enough of for the past year.

  • Another huge Defi-Exploit, Ankr protocol attacked for 10 trillion aBNBc tokens

    Another huge Defi-Exploit, Ankr protocol attacked for 10 trillion aBNBc tokens

    In a shocking turn of events, the Ankr aBNBc contract was recently attacked, resulting in the creation of an additional 10 trillion aBNBc tokens. This is particularly concerning because BNB Chain had recently launched the liquid staking feature, which allowed users to earn interest by staking their BNB tokens to the liquid staking agreement and receiving aBNBc tokens in return. The attack happened in the following transaction: https://bscscan.com/address/0xf3a465c9fa6663ff50794c698f600faa4b05c777

    Quick Summary:

    1. Ankr aBNBc contract was attacked, resulting in the creation of 10 trillion additional aBNBc tokens.
    2. Ankr announced they would purchase 5 million BNB worth of tokens to compensate the liquidity providers.
    3. Tornado Cash is being used to launder the stolen funds
    4. Ankr had previously received an Audit from Peckshield warning about a “trust issue of Admin Keys”, which had the potential to be used for privileged minting of aBNB tokens.
    5. Companies must take security warnings seriously and address any potential vulnerabilities as soon as possible to avoid catastrophic financial losses and reputational damage.

    What is the Ankr Platform

    Ankr is a blockchain-based cross-chain infrastructure with a DeFi platform that enables staking and dApp development, and was designed and developed with the goal of creating a decentralized, private, and secure internet. Through the Stkr protocol, users are able to stake Ethereum (ETH) in return for aETH, which represents the future gains on their deposited staking balance. With their mainnet launched in 2019, users can deploy development nodes and build dApps on the network, or deploy staking nodes and become stakers on the ANKR Web3 platform.

    What happened with the exploit

    The Ankr Exploiter was able to transfer 900 BNB into Tornado Cash, which caused the price of aBNBc to drop by 99.5%. In response to this security breach, Ankr announced that they would purchase 5 million BNB worth of tokens and use them to compensate the liquidity providers. Additionally, they plan to take a snapshot and reissue ankrBNB to all valid aBNBc holders before the exploit.

    Ankr’s response to the incident

    Tornado Cash is an Ethereum-based noncustodial privacy platform that provides users with the ability to deposit and withdraw ERC-20 tokens and ETH without revealing the source of the funds. A secret hash is generated by the protocol whenever a user deposits funds into the liquidity pools and this hash is used to prove ownership when they wish to withdraw. This ensures that the source of the funds is untraceable, providing total asset privacy. In 2020, ownership of Tornado Cash was transferred to its community, making it a fully decentralized protocol. As such, no one individual or entity has control over it, thereby ensuring that users can use the protocol in complete confidence that their privacy is secure.

    Damage will be minimal as Ankr is willing to compensate for damages

    This incident serves as a reminder that having an audit does not guarantee security. Ankr had previously received an Audit from Peckshield warning about the ‘trust issue of Admin Keys’, which had the potential to be used for privileged minting of aBNB tokens. Despite this warning, the team “Confirmed” the warning but failed to address the underlying issue.

    As this incident demonstrates, it is essential that companies take security warnings seriously and address any potential vulnerabilities as soon as possible. Without proper security measures in place, companies risk potentially catastrophic financial losses and reputational damage. It is therefore important that companies regularly review their security protocols and remain vigilant against possible threats.

  • What will happen to BlockFi?

    What will happen to BlockFi?

    BlockFi is a company that specialises in providing cryptocurrency lending services to clients worldwide. In our previous article, we reported that since 11th November 2022, BlockFi has paused its client withdrawals. Their reason for this was because of the “lack of clarity” in the status of FTX.com, FTX US and Alameda. Now the question is, what will happen to BlockFi? Will they also go bankrupt like FTX?

    What is BlockFi?

    BlockFi was founded in 2017 by Zac Prince and Flori Marquez. The aim of BlockFi was to create credit services for those with limited access to simple financial products. Their financial products included borrowing using crypto as collateral, the ability to earn crypto interest rates, and trading, among others.

    BlockFi prides itself as the only independent lender and is backed by notable investors such as Valar Ventures, Fidelity, Akuna Capital, and Coinbase Ventures to name a few.

    What is happening to BlockFi?

    Since 11th November 2022, BlockFi has paused its client withdrawals due to “lack of clarity” in the status of FTX.com, FTX US, and Alameda. Wire withdrawals and loan processing have also been delayed since 10th November 2022 but are expected to resume on 14th November 2022. When BlockFi users access the website, there is a banner warning them that client withdrawals have been paused. BlockFi also reminds users not to make deposits to the BlockFi Wallet or Interest Accounts for the time being.

    BlockFi suspends withdrawals
    BlockFi suspends withdrawals

    What is happening to BlockFi cards?

    BlockFi’s BlockFi Rewards Visa Signature Card was one of the first cryptocurrency rewards credit cards in the market. The BlockFi card’s major benefits include 1.5% crypto rewards on every single purchase, which can go up to 10% for spending with BlockFi’s partners.

    However, there have been people reporting that purchasing privileges on the BlockFi card have been suspended “until further notice”. This means that cardholders can no longer make purchases using the BlockFi card.

    BlockFi card services have been suspended

    This development stems from the fact that payments company Curve is in active negotiations with BlockFi to acquire their over 87,000 credit card customers. According to reports, if the negotiation is successful, Curve will take over the BlockFi card program, and aim for customers to still be able to earn crypto rewards as they did before.

    Is BlockFi in trouble?

    In June 2022, FTX US had extended a US$400 million line of credit to BlockFi with an option for FTX us to acquire BlockFi for a variable price of up to US$240 million. However, the collapse and bankruptcy of FTX have put the future of BlockFi in question for some. This is compounded by the fact that California’s Department of Financial Protection and Innovation (DFPI) said on 11th November 2022 that they were suspending BlockFi’s lending license for 30 days. During this suspension, the DFPI will be conducting investigations into BlockFi.

    BlockFi has also admitted in its latest update that it had “significant exposure” to FTX and their associated companies. However, they deny they had a majority of funds held at FTX. To learn more, check out our article- Were BlockFi’s assets held on FTX?

    BlockFi files for bankruptcy

    On 28th November 2022, BlockFi announced it had filed for Chapter 11 bankruptcy in the United States. This latest development comes after speculation has already been brewing in the past few weeks that it was affected by the collapse of FTX exchange. The bankruptcy will include Blockfi and 8 of its subsidiaries.

    According to Court documents, BlockFi has over 100,000 creditors. The company has both assets and liabilities in the range of US$1-10 billion and US$256.9 million cash on hand.

    Therefore, the future of BlockFi is still uncertain, and there is fear that it may go bankrupt like the FTX Group. However, there is currently no official announcement or news that BlockFi will be filing for bankruptcy.

    How much does FTX owe BlockFi and vice versa?

    During BlockFi’s bankruptcy hearing, the company revealed it has US$355 million stuck on FTX. Further, Alameda Research, an associated company of FTX, has defaulted on its US$680 million loan from BlockFi.

    On 28th November 2022, BlockFi had also sued Emergent Fidelity Technologies, a company owned by FTX’s Sam Bankman-Fried. The purpose of the lawsuit was to seek SBF’s shares in Robinhood that were used as collateral as part of a pledge agreement.

    On the other hand, on 1st July 2022, FTX US extended a US$400 million line of credit to BlockFi. Of this, BlockFi still owes FTX US US$275 million as allegedly agreed to by 89% of its shareholders. The purpose of the loan was to help BlockFi after it was affected by the collapse of Terra’s stablecoin in May this year. The loan was originally set to mature on 30th June 2027 and had an interest rate of 5% per annum.

    What will happen to BlockFi?

    On 28th November 2022, BlockFi had its first bankruptcy hearing. During this hearing, BlockFi expressed that it will intend to seek the Court’s approval to restore withdrawals for BlockFi wallet holders. However, no formal application has been made yet and the Court has not made a decision on whether withdrawals will be reopened to customers.

    BlockFi’s next bankruptcy hearing is presently scheduled for 9th January 2023 at 10:00 EST.

  • Proof-of-Reserves Explained: Essential for Crypto Exchanges

    Proof-of-Reserves Explained: Essential for Crypto Exchanges

    In light of the FTX collapse, cryptocurrency exchanges are implementing proof-of-reserves (PoR) as a form of on-chain accounting that shows their entire holdings and customers’ assets. As centralized entities, this is a big step towards a more transparent crypto ecosystem, but some argue it might not be enough to regain investor trust. In this article, we will explain how PoR works and why it matters.

    What is Proof-of-Reserves (PoR)?

    Proof-of-reserves (PoR) is a cryptographic method to verify that an exchange has enough assets to cover all customers’ deposits. In doing so, the exchange ensures customers they have sufficient liquidity on hand to process all withdrawals, should a bank run occur.

    This came to light after FTX secretly used $10 billion of customer funds to prop up its sister company Alameda Research, which ultimately led to a liquidity crunch amidst mass withdrawals.

    This has left the crypto community wondering what other crypto exchanges might be doing with customer assets. As a result, Binance CEO Chengpeng Zhao (CZ) urged all crypto exchanges to do PoR, albeit Kraken was one of the first exchanges to prove their reserves in February 2022.

    How Does Proof-of-Reserves Work?

    Proof-of-reserves essentially involves taking a snapshot of all balances held on the exchange which are aggregated into a Merkle tree — a data structure designed to encapsulate and encrypt data. These Merkle trees, also known as hash trees, function as a map of the exchanges’ assets and liabilities (customers’ tokens).

    From there, a Merkle root is obtained, which is a cryptographic fingerprint that uniquely identifies the combination of these balances at the time when the snapshot was taken. Afterwards, digital signatures produced by the exchange are collected, which prove ownership over the on-chain addresses with publicly verifiable balances. To put it simply, the exchange discloses these addresses and provides proof that they have access to the associated private key.

    Because Merkle trees are part of blockchain technology, anyone can compare and verify if these balances exceed or match the customers’ balances represented in the Merkle tree. In the case of crypto exchanges, this process is either self-attested by the exchange or carried out by an independent third-party audit. As of now, most crypto exchanges have been working with Nansen, a blockchain analytics platform, for their PoR audit.

    Downsides of Proof-of-Reserves

    Although proof-of-reserves is certainly a step in the right direction, there are still several improvements that could be made to enhance transparency and trust.

    Proof-of-Reserves are Pointless without Proof of Liabilities

    A proof-of-reserve audit without disclosure of total liabilities, not just customers’ tokens, does not paint a full picture of an exchange’s solvency. This would include anything the exchange owes such as debts and taxes. Kraken CEO Jesse Powell expressed that Binance’s PoR is pointless without liabilities. This is also in reference to other platforms publishing their PoR without mentioning any liabilities. He also added that accounts with negative balances must also be included in the sum of total liabilities.

    However, the problem is that these liabilities are NOT on-chain, which means an independent auditor has to step in. At that point, crypto exchanges will have to provide the same proof as all public and regulated companies provide — audited financial statements. (Clonazepam) Coinbase is one of the few exchanges to do this. Since they are a public company subject to U.S. regulations, they have already been proving their reserves using balance sheets audited by the SEC.

    Therefore, the most reliable way to prove an exchange’s assets are more than its liabilities is via third-party auditors. In fact, CZ responded to Powell’s comments that Binance would involve third-party auditors to audit their PoR results.

    Proof-of-Reserves Audits Can be Falsified

    Although the cryptographic proof do not lie, it can be manipulated and framed to look healthy. There is the issue of crypto exchanges moving their funds right after the snapshot for the audit was taken. Recently, Crypto.com mistakenly transferred 280,000 ETH to a Gate.io address after it released its proof-of-reserves audit. Many speculated that exchanges were borrowing assets to show a healthy balance sheet, only to return them after the snapshot.

    Moreover, a PoR audit is only as good as its verifier. There is also the issue of exchanges colluding with third-party audits to produce false results. Unless the exchange is audited by a reputable source such as the Big Four accounting firms, we will just have to take their word for it.

    Proof-of-Reserves Do Not Prevent Customer Fund Misappropriation

    Even then, audits and attestations may not suffice. At its core, crypto exchanges are not the same as banks — crypto is not insured by government depositary schemes. Even if all the steps are done correctly, customers can still lose their crypto if mishandled.

    Merkle tree-based PoR would not prevent the misappropriation of customer funds completely. It only tracks the money, providing information. It does not provide customers with greater control over their funds. If the exchange is caught in the act, you would not be able to get your crypto back as it is likely to be tied up in litigation.

    Not your keys, not your crypto. We strongly suggest keeping your crypto on hardware wallets such as Ledger Nano X, Ledger Nano S Plus, Ledger Nano S, Trezor One or Trezor Model T.

    Why Proof-of-Reserves is Crucial

    At the end of the day, proof-of-reserves is the first step towards a more transparent crypto ecosystem. In effect, it functions as a verification tool to filter out fraudulent crypto exchanges, albeit not completely.

    By leveraging blockchain technology, PoR brings crypto exchanges closer to the treasuries of DeFi protocols, allowing anyone to trace funds on-chain at any time. However, there is much to improve in this aspect. But with on-demand, real-time tracking of exchange reserves, the industry is working towards a decentralized and trustless system, where customers do not need to trust the institution, only the math.

  • Is Solana (SOL) Dead After FTX Bankruptcy?

    Is Solana (SOL) Dead After FTX Bankruptcy?

    Over the past two years, Solana has risen to be one of the largest blockchains by both market cap and usage, rivalling that of Ethereum. This rapid growth was largely driven by Sam Bankman-Fried (SBF), former CEO of recently bankrupt exchange FTX, who was a huge proponent of the project. In light of the FTX contagion, Solana was hit hard, leaving investors to question the state of the ecosystem.

    In case you are out of the loop, we have covered the entire timeline of the FTX contagion in chronological order listed down below:

    How is Solana Affected by the FTX Collapse?

    Solana (SOL) Token Holdings of FTX

    According to an FTX balance sheet shared with investors, the exchange held $982 million in SOL. It is also reported by CoinDesk that the second largest holding of Alameda Research, the sister company of FTX, is SOL. It stands to reason that FTX and Alameda might have dumped their holdings to raise liquidity, though not confirmed.

    Since the beginning of FTX’s downfall, SOL has tanked -59% in price, putting it at -94% below its all-time high. It is also expected that many investors have exited their SOL position out of fear.

    Moreover, FTX and Alameda Research purchased 50.52 million SOL tokens from Solana Foundation and 7.56 million SOL from Solana Labs, representing nearly 11% of the total supply. On the bright side, most of these tokens are vested through a linear monthly unlock mechanism, which means FTX do not have them in custody yet. The last of these unlocks will occur by January 2028.

    Given FTX and Alameda are undergoing bankruptcy, their tokens will be frozen once unlocked, preventing further sell pressure. But it is likely that proceedings will involve liquidating SOL to repay FTX creditors.

    Massive TVL Decline in Solana’s DeFi Ecosystem

    Apart from SOL’s price, Solana’s DeFi ecosystem has also been severely impacted. Since the beginning of FTX’s downfall, more than $700 million have exited Solana’s ecosystem, leaving just a mere $285 million in total value locked (TVL) at the time of writing, according to DeFi Llama.

    A lot of this has to do with Project Serum, an order book based decentralized exchange (DEX) laying at the heart of Solana’s entire DeFi ecosystem, providing liquidity and pricing data to many other major DeFi protocols. Unfortunately, Serum was launched by SBF, and most of its liquidity comes from FTX and Alameda. Moreover, the recent FTX hack revealed that the private key of Serum’s program was compromised, suggesting FTX insiders were in control of them. As a result, Serum developers forked the program to separate from FTX and protect end-users.

    Depegged Wrapped Tokens on Solana

    Another critical issue is that wrapped tokens notably soBTC and soETH are depegged. This is because these wrapped assets are backed by collateral held in FTX, but because their liquidity dried up, no one knows if FTX still has the underlying assets. As a result, these wrapped tokens are no longer redeemable.

    This is very problematic, because almost all DeFi protocols have soBTC and soETH as collateral since it is accepted as the de facto BTC and ETH in Solana. But if underlying assets are completely invalid, then these wrapped tokens have no value, which could worsen the contagion.

    Will Solana Make a Comeback?

    It is important to remember that this collapse is from centralized players and not from decentralized protocols. The technology behind the Solana blockchain is not affected. Though Solana is experiencing big price declines, its community remains resilient and bullish as they continue to build despite market sentiment.

    Better Technology for Solana

    Recently, Coinbase Cloud has been helping with the network upgrade of Solana, implementing (1) Quick UDP Internet Connections (QUIC), (2) Stake-weighted Quality-of-Service (QoS), and (3) local fee markets.

    1. QUIC gives validators more control over incoming traffic. It will help prevent spammed transactions from overwhelming validators like in the April 2022 outage.
    2. Stake-weighted QoS ensures that validators can forwards transactions to slot leaders based on stake-weight, regardless of network conditions. Even if the slot leader is being spammed, other validators should be able to forward transactions to them. This QoS feature has been rolled out with QUIC.
    3. Local fee markets allow users to have their transactions included over others by adding a prioritization fee. This addition unlocks a new dimension in competing for transaction inclusion, whereas in the past, spamming was the only way to compete.

    Moreover, Google Cloud is running a block-producing validator on Solana, introducing Blockchain Node Engine to the blockchain next year. All of these features together will immensely increase the throughput capacity of the network.

    Improved Network Performance and Decentralization

    As a result of recent development, network performance has improved as average time to produce a block has decreased, increasing transactions per second. Moreover, active user number on Solana remains strong despite this year’s market downturn. As of October 2022, there are 11.5 million active accounts and 1.7 million active fee payers.

    Solana’s validator network is becoming more decentralized, ranking third on the Nakamoto Coefficient, a measurement for network decentralization. Furthermore, with FTX and Alameda expected to liquidate their SOL holdings, new buyers will come and help spread out the holding percentages, further increasing decentralization.

    Strong Developer Community

    In 2022, Solana has seen unprecedented developer activity across DeFi, DAOs, NFTs, GameFi, payments and mobile apps. Open source repos and developer activity on Solana surged this month, thanks to growing developer education resources and an easier onboarding experience. Additionally, DAO tooling and adoption has made it possible for large numbers of Solana projects to be managed on-chain.

    Solana also has a thriving NFT ecosystem. Even after the dip, it remains the second largest NFT ecosystem, according to CryptoSlam!. Solana NFTs are onboarding hundreds of thousands of users to the network, with over $3.6 billion in primary and secondary sales.

    According to sec3, a security research firm for Solana projects, thousands of developers are using, deploying, and auditing 1,000+ unique programs on Solana. Between the Phantom wallet, the NFT ecosystem, big partnerships with Instagram, and new use cases like StepN (move-to-earn), Solana continues to bring new users into the web3 space.

    Final Takeaway

    It is important to remember that Solana is NOT FTX. Even though Solana was heavily invested by FTX, its technology and decentralized protocol were never affected. The huge price declines we are currently seeing is most likely due to mass panic sells and forced liquidations of the FTX Group as well other ventures. As long as Solana continues to build, fresh healthy money will come flowing in the ecosystem.

  • Is KuCoin safe from the collapse of FTX?

    Is KuCoin safe from the collapse of FTX?

    KuCoin is a cryptocurrency exchange launched on 15th September 2017 and has over 20 million users worldwide. The recent bankruptcy of the FTX Group and “hack” however have resulted in a “contagion effect” resulting in speculation as to which other crypto companies might collapse. In this article, we answer the question- is KuCoin safe from the collapse of FTX.

    What is KuCoin?

    KuCoin is a centralized cryptocurrency exchange, meaning that users’ cryptocurrency deposits are stored and held in custody by the exchange. KuCoin refers to itself as “The People’s Exchange” and is headquartered in Seychelles. The exchange has over 20 million users worldwide and 660 million US dollars in trading volume daily. This certainly puts them in the top 10 most popular exchanges in the market.

    How might the collapse of FTX affect KuCoin?

    On 11th November 2022, FTX, FTX US, and Alameda filed for bankruptcy in the United States. This came after several days of withdrawals being suspended on the exchanges and rumours already circulating that they were in trouble. On the same day, it was reported that over US$600 million were drained from FTX by a hacker. This hacker was eventually identified to be a former employee of FTX exchange. It was also revealed that one of the reasons for FTX’s collapse was because Alameda Research, which was FTX’s trading house, had burned through nearly US$10 billion in cash belonging to its clients.

    The collapse of FTX has brought the safety of all centralized cryptocurrency exchanges to the forefront. This is especially since FTX was one of, if not, the largest cryptocurrency exchanges. The revelations that FTX had been wrongfully handling client funds have also sent fear amongst cryptocurrency traders.

    As a result, in the days leading up to the announcement of FTX’s bankruptcy filing, cryptocurrency traders were rushing to withdraw their funds stored on exchanges. There were rumours circulating as to which crypto companies had funds on FTX. And, if so, how much and whether they would be affected by the collapse of FTX. Meanwhile, some cryptocurrency services such as BlockFi have also suspended withdrawals and are rumoured to be filing for bankruptcy. Of course, being a major exchange, KuCoin was also subject to rumours and questions about its solvency and whether they are safe from the FTX contagion.

    KuCoin addresses rumours of outflows following FTX collapse

    On 9th November 2022, KuCoin’s CEO Johnny Lyu wrote a letter addressing the FUD (Fear, Uncertainty and Doubt) surrounding the exchange. The rumour surrounding KuCoin originated from a stablecoin outflow chart by Nansen, a blockchain analytics firm. The flowchart showed that US$300 million had left the exchange. However, it was quickly clarified by Nansen CEO Alex Svanevik that the US$300 million was merely a swap from USDT network to Tron. Therefore, the funds had in fact not left KuCoin exchange.

    Nansen clarifies the alleged outflow of US$300 million from KuCoin

    In the letter, KuCoin also notes that it was probably the 10th time in 6 months that there are circulating rumours on Twitter that KuCoin is insolvent. It is also admitted that KuCoin did suffer a hack in 2020 with over US$275 million worth of cryptocurrencies, resulting in a liquidity crisis. However, KuCoin was able to cover 100% of their users’ funds and so users did not suffer any loss.

    As seen below, KuCoin has also denied having any exposure to FTX or its native FTT token.

    Does KuCoin have any exposure to FTX or FTT?

    Lyu has also clarified on Twitter that KuCoin does not have any exposure on FTX or FTT. This dispelled the speculation by Cobie, host of the UpOnly podcast.

    KuCoin FTX FTT exposure rumour
    Lyu dispels rumours that KuCoin has exposure on FTX or FTT (Source: Twitter)

    Is KuCoin safe?

    As seen above, KuCoin has already expressly denied they have any exposure to or deposited any funds at FTX. To reassure its users, KuCoin has promised to release its Merkle tree proof-of-reserves (POF) in one month.

    Meanwhile, Nansen has listed KuCoin’s portfolios and explanatory statements of accounts here.

    The “total assets” and “net worth” figures in the portfolio show the sum of the cryptocurrencies in the wallet addresses provided by KuCoin. These wallets are continuously monitored by Nansen, although they cannot be taken as a complete statement of the actual assets or reserves held.

    On 11th November 2022, Lyu also provided an overview of their hot and cold addresses and holdings. KuCoin’s holdings as of 7:00 UTC on 11th November 2022 comprised of 20,504 BTC, 180,299 ETH, 1,075,909,241 USDT, 365,722,839 USDC, and 69,601,075 KCS.

    KuCoin wallet holdings

    As mentioned, KuCoin is working on the Merkle-tree proof-of-reserves. The exchange is also expecting the completion of an audit by third-party auditor Aarmanio LPP. Both are expected to be completed in a month’s time i.e. in around early December 2022.

    Therefore, it seems that KuCoin exchange is safe from the FTX collapse for now. However, users are still recommended to keep their funds off of any exchanges. Instead, users should consider storing their cryptocurrencies in hardware wallets as it means the cryptocurrencies are in their own custody. Check out our reviews for some popular hardware wallets:

  • FTX Hacked: Hacker Identity Revealed by Kraken

    FTX Hacked: Hacker Identity Revealed by Kraken

    FTX Advises Users to Delete App and Avoid Website

    On the same day FTX, FTX US, and Alameda Research filed for bankruptcy, more than $600 million was reportedly drained from the cryptocurrency exchange. Many FTX users reported that their wallet balance showed $0. Shortly afterwards, FTX officials confirmed on Telegram that a hack was ongoing, warning all users to delete the app and avoid visiting the website due to a possible malware attack.

    Source: FTX_Official (Telegram)

    See also: SBF vs CZ War: What’s Happening with FTX and Binance?

    Tether Blacklists Stolen USDT of the FTX Hack

    A sizeable portion of the stolen funds contained USDT. After FTX’s announcement, Tether immediately blacklisted $31.4 million worth of USDT linked to the transactions. According to ZachXBT, a blockchain investigator widely trusted by the DeFi community, the blacklisted USDT were made up of $3.9 million USDT on Avalanche and $27.5 million USDT on Solana.

    By blacklisting the stolen USDT, hackers will not be able to move them to other accounts or exchange them for other crypto. To compensate victims of the hack, Tether will burn the blacklisted USDT and reissue equal amounts of tokens to the original owner(s).

    FTX Hack Speculated to be an Inside Job

    Suspicions circulated on Twitter that the “hack” was a smokescreen for FTX insiders (possibly Sam Bankman-Fried himself) to run off with the funds. The timing of it all was too much of a coincidence to suggest an external attacker taking advantage of the situation.

    A former senior FTX employee, quoted by Autism Capital, believed that it was impossible for someone outside of FTX to have so much root access so quickly, suggesting an inside job is highly likely. To corroborate this, FTX CTO Gary Wang was seen making major changes to FTX’s GitHub code, which implies that the source of the “hack” began there.

    Dyma Budorin, co-founder and CEO of Hacken, also concurred that it was an inside job, albeit the “hacker” was inexperienced and sloppy.

    Kraken Reveals Hacker Identity to be FTX Insider

    The crypto community kept a close eye on the movement of the stolen funds, and discovered that one of the wallet addresses was linked to a Kraken exchange, where the hacker offloaded funds to a Tron wallet. This was a huge blunder for the hacker as Kraken holds know-your-customer (KYC) information of all registered accounts, allowing them to track down the wallet user.

    As a result, Kraken CSO Nick Percoco announced on Twitter than they know the identity of the hacker, and are assisting law enforcement agencies with the investigation. Percoco later confirmed that the wallet indeed belongs to a verified account registered by FTX. Sam Bankman-Fried and FTX will be making a public statement regarding this issue.

    To follow up on the investigation, Kraken has frozen accounts associated with the FTX Group and Alameda Research. They assured that they maintain full reserves and other Kraken clients are not affected.

  • SBF vs CZ War: What’s Happening with FTX and Binance?

    SBF vs CZ War: What’s Happening with FTX and Binance?

    Binance CEO Changpeng Zhao (CZ) and FTX CEO Sam Bankman-Fried (SBF), two of the most powerful men in the crypto industry, have been going toe to toe with each other on Twitter. But this fight is much bigger than both of them, as FUDs and controversies surrounding SBF and FTX could potentially impact the crypto industry. In this article, we will break down the core timeline of the feud and explain how its outcome could affect every investor in the crypto space.

    For the latest update. Check out our latest video- IT’S OVER: Binance to Acquire FTX

    IT’S OVER: Binance to Acquire FTX

    Alameda Research Reportedly Insolvent

    The current drama surrounding CZ and SBF began when the balance sheet of Alameda Research, the sister quantitative trading firm of FTX, was leaked. According to a private document CoinDesk reviewed, out of $14.6 billion in total assets of Alameda, $3.66 billion is in FTT, FTX’s native token, and $2.16 billion in FTT collateral. Other significant assets also include $3.37 billion of crypto tokens connected to SBF in one form or another including Solana (SOL), Serum (SRM), and more.

    This is a big red flag as it indicates that the majority of Alameda’s net equity is FTX’s own centrally controlled token printed out of thin air, making it completely illiquid. Let’s look at it this way: the current market cap of FTT is $2.3 billion and Alameda’s numbers show an excess of nearly 200% of the total circulating supply of FTT. This means that Alameda’s assets cannot be sold without severely impacting the market.

    Many crypto experts drew parallels from Celsius Network’s collapse as Alameda is following the same model, leading to widespread rumors of Alameda going insolvent.

    CEO of Alameda Research Caroline Ellison asserted on Twitter that the balance sheet only reflects a few of their biggest long positions, and the company actually has over $10 billion in assets that are not included in the balance sheet. However, this does not address the issue that Alameda is holding $5 billion worth of “magic money” reported on their balance sheet.

    Binance Liquidates Its Entire FTT Holdings

    Shortly after the leak, CZ posted a Twitter thread announcing Binance’s full exit from its FTT holdings. But they will do so in a way that minimizes market impact, selling it on the open market at monthly intervals. CZ fired shots at SBF stating that liquidating their FTT is a post-exit risk management, learning from the Terra Luna collapse. This implicated that FTX could potentially repeat history, heading into a death spiral if a bank run were to happen.

    Shortly after, Ellison responded to CZ that Alameda was willing to buy all of Binance’s FTT holdings at $22. Several members of the crypto community believed that the response seemed desperate and was a buyback red flag. CZ eventually declined the bid, and further added that he will not support “people who lobby against other industry players behind their backs.” This is in reference to SBF allegedly supporting the DCCPA draft bill last month that could pose significant threats to DeFi.

    If SBF’s alleged political stance is the match and Alameda’s balance sheet is gasoline, then CZ liquidating its entire FTT holdings is striking the match.

    This series of events sparked a lot of FUD in the crypto community, resulting in staggering outflows as people were rushing to withdraw funds from FTX, with stablecoin outflows from FTX reaching $451 million according to Nansen data. Reports also show a 4-8 hour delay and increased fees in FTX withdrawals, upsetting many FTX users. At the time of writing, FTT token has dropped 39% from its weekly high.

    Sam Bankman-Fried’s Response to Insolvency Rumors

    SBF recently issued a response (update: Tweet deleted) assuring people that FTX and its assets are fine. He explains that FTX has enough capital to cover all client holdings and is processing all withdrawals. In response to the cause of the overall situation, SBF stated that a competitor is targeting them with false rumors, throwing shade at CZ. Ironically, at the end of SBF’s Twitter thread, he calls for collaboration with CZ for the ecosystem.

    Though as calm as SBF is handling the situation, it does not address the issue that Alameda is holding $5 billion worth of FTT tokens printed out of thin air, the very same model that led to the collapse of Celsius. It is impossible to sell an illiquid asset without severely impacting the market. But at the end of the day, FTX is a highly reputable organization with a lot of resources and manpower.

    Larry Cermak, Vice President of Research at The Block, believes that FTX and Alameda has the size to weather through the storm, and that FTX going insolvent is near 0%. He also mentioned however that it is clear there are liquidity issues with FTX currently. Other crypto experts also agreed but also advised investors to treat the situation with caution.

    SBF vs CZ: Who won the war?

    CZ emerges as the clear winner in the war between SBF vs CZ. SBF indirectly admitted defeat on 9th November 2022 when he announced that he agreed to a “strategic transaction with Binance for FTX.com”. This, agreement, however, fell through as detailed in our article- Binance will NOT acquire FTX: What is next?

    The SBF vs CZ war finally ended with CZ coming out victorious on 11th November 2022, when SBF announced he had filed FTX, FTX US, and Alameda for voluntary Chapter 11 bankruptcy in the US.

    Now with FTX exchange out of the picture, CZ’s Binance exchange comes out top. Binance now has the highest 24-hour trading volume and page visits out of all the centralized cryptocurrency exchanges according to CoinGecko.

    Top cryptocurrency exchanges ranking (Source: CoinGecko)
  • Binance Will NOT Acquire FTX: What is Next?

    Binance Will NOT Acquire FTX: What is Next?

    Binance CEO Changpeng Zhao (CZ) decided that Binance will not go through with the deal to acquire FTX, one day after he announced that he intended to acquire FTX. This shocking turn of events could create a ripple effect throughout the crypto market, affecting all investors and businesses. 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 event. You can also check out our latest video — FTX Collapsing: Biggest Disaster in Crypto? for more insight.

    Why Did Binance Back Out of the Acquisition Deal?

    Binance announced on Twitter that they will not go through with the deal to acquire FTX as a result of “corporate due diligence” and “mishandled customer funds” in FTX’s books pending investigations by U.S. regulatory agencies.

    This is in reference to speculations of FTX violating its own terms of service by using customer funds for trading and loaning it out to Alameda Research for a bailout in Q2 2022 following the Terra Luna collapse. To simply put, instead of keeping customer funds on FTX as liquid cash, FTX used customer funds to buy FTT tokens to bail out Alameda. (https://www.algerie360.com/)

    After this revelation, FTX users were rushing to cash out fearing the exchange might be going insolvent. This led to a liquidity crunch, forcing FTX to halt all crypto withdrawals. We are talking about at least $8 billion of user funds stuck on the exchange which possibly cannot be saved, according to Wall Street Journal.

    This is the most likely scenario, ascertained and corroborated by many crypto experts. jonwu.eth on Twitter gives a perfect summary of how everything went down. Funnily enough, FTX CEO Sam Bankman-Fried (SBF) deleted his Tweet which he assured clients that their assets are fully protected. But as of now, these speculations are not officially confirmed. This is where U.S. regulators (SEC, DOJ) are stepping in to investigate FTX for potential securities-law violations, according to Wall Street Journal.

    How This Will Affect All Investors

    Binance acknowledged that the collapse of FTX will severely impact all retail investors, but will continue to build towards a stronger decentralized ecosystem. This is reiterated by CZ in his internal message sent to all Binance teams globally.

    source: @cz_binance (Twitter)

    It is not just user funds that are stuck on FTX, but other crypto projects’ as well. According to CoinDesk, many crypto businesses and ventures have exposure to FTX in one way or another, whether via storing funds, providing liquidity or borrowing and lending. This affects all ecosystems throughout the crypto industry as wild price swings trigger a domino effect of forced liquidations across the market, similar to Three Arrows Capital or Voyager Digital after the Terra Luna collapse.

    It is the first time Bitcoin (BTC) has fallen below $16,000 since November 2020, a 77% decrease from its all-time high last year. Since BTC has broken past its first support level of $19,000, it would take time for its range to be established after capitulation event. As BTC is the first and largest cryptocurrency by market cap, it practically dictates the price actions of all altcoins including Ethereum (ETH). We can expect the market to be highly volatile in the coming weeks.

    source: @CryptoCapo_ (Twitter)
  • Binance to Acquire FTX: What This Means for All Investors

    Binance to Acquire FTX: What This Means for All Investors

    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.

    FTX Halts Withdrawals due to Liquidity Crunch

    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.

    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

    Binance’s acquisition of FTX has definitely raised major concerns for government authorities. Several CEOs of other major crypto exchanges such as Jesse Powell (Kraken), Brian Armstrong (Coinbase), Jeremy Allaire (Circle), and Kris Marszalek (Crypto.com) expressed on Twitter that government authorities might step in next to enforce more heavy-handed regulations.

    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.