Crypto collapse: TrueUSD in trouble, Prime Trust and Banq go down, Europe hates Binance, BlockFi, Terra-Luna, Twitter is just resting

By Amy Castor and David Gerard

Remarkable bird, the South African Blue, idn’it, ay? Beautiful plumage!

Twitter has now made it impossible to read tweets without being logged in. As of July 1, you can’t even load more than a few hundred tweets when you’re logged in — or you hit the rate limiter!

This has broken a pile of links and embeds on our previous posts. Some of it should be in the Internet Archive.

Elon Musk was trying to stiff Google on Twitter’s cloud bill — Twitter owed Google $42 million — and Google said they’d cut Twitter off as of July 1. Twitter’s new CEO, Linda Yaccarino, said she’d sorted it out — but then Twitter stopped working around 9 a.m. PST on July 1. This probably isn’t a coincidence. [Platformer; Bloomberg; New York Times]

We don’t know what crypto Twitter will do now. Mastodon and Bluesky are popping off, but neither has the sort of audience of suckers that crypto needs and Bluesky isn’t even officially open to the public yet. Bluesky users do a good line in naked hostility to crypto — even as the CEO used to be a ZCash developer and they tried to seed the userbase with NFT bros.

Using Twitter for actual work now is like using PACER for actual work. Except PACER is more pleasant.

In the meantime, all Twitter links in our posts will include archive links from now on. Archive. Everything.

Prime Trust takes out TrueUSD

TrueUSD runs TUSD, a supposedly asset-backed stablecoin. It’s pretty clearly unbacked. The entire enterprise has fallen over. You can’t get your money back.

But Binance is still printing its own fresh TUSD.

The market cap for TUSD has risen from $750 million to more than $3 billion in only six months. A pile of fresh TUSD fueled the recent pump in the price of bitcoin.

Binance replaced BUSD with TUSD earlier this year as its stablecoin of choice after US regulators started scrutinizing BUSD and Paxos.

Given all of Binance’s regulatory issues of late, it’s no wonder they’re still printing. They need the money, whether it’s real or not.

The ownership of TrueUSD is murky. It was launched in March 2018 by Rafael Cosman and Danny An, who cofounded TrustToken, which later became Archblock, a San Francisco firm with offices in Ireland and Poland. The company got funding from Thiel’s Founders Fund, Stanford’s StartX, a16z, and Jump Trading.

Archblock manages TrueUSD’s reserves, its banking partners, and its compliance. The token’s intellectual property is owned by a hitherto unknown BVI-registered investment company called Techteryx. Justin Sun totally doesn’t own TrueUSD, honest. [Bloomberg; Protos]

The problem, we’re guessing, is that TrueUSD minting and custody partner Prime Trust — also a former custodian for Binance.US, FTX, and Celsius — has gone broke.

Prime is an actual trust company that holds people’s crypto for a fee. How do you go broke in that business? Prime’s current story is that they … lost the keys to the cryptos in custody. Whoops.

Prime Trust is short $83 million — that they’ll admit to. The Nevada Department of Business and Industry has put Prime Trust (Prime Core Technologies and subsidiaries) into receivership. They’ve halted all withdrawals. [Nevada order, PDF; Petition for a receiver, PDF]

BitGo, another crypto custodian, put together a “preliminary non-binding agreement” to buy Prime Trust on June 8 — but walked away from the deal two weeks later after Nevada sent the cease and desist order. [BitGo; Twitter, archive]

TrueUSD assures its users that everything is fine and that they have other banking partners. “Rest assured, all your funds are safe with TUSD.” At the same time, they’ve been sending notices to customers telling them they can’t redeem TUSD: [Twitter, archive; Twitter, archive]

… you will be unable to mint and redeem TUSD as well as any of our TrueCoin’s including TAUD, TCAD, and TGBP while Prime Trust operations are suspended.

How screwed is TUSD? “people try to redeem tusd and it just gets reminted to them a couple of days later lmao” [Protos; Twitter, archive]

But that’s okay! TUSD is still worth a genuine* dollar on Binance!

Banq, Prime Trust, Jon Jiles, and NFTs

Crypto payments company Banq — not, in fact, a bank — was founded as a subsidiary of Prime Trust. It was spun out and is now a partner company. Banq filed for voluntary bankruptcy on June 13. The reorganization plan lists $190,000 in assets and $5.4 million in liabilities. [Petition, PDF; Plan of Reorganization, PDF; case docket]

In its reorganization plan, Banq says that $17.5 million of its assets were blown on a May 2021 plan by former CEO Scott Purcell to pivot from payments to NFTs. Banq is suing to get the money back.

According to Banq’s filing, the company made a large payment to Fortress NFT Group — a new company founded by Purcell, Banq CTO Kevin Lehtiniitty, and Banq general counsel George Georgiades. Purcell abandoned the NFT plan in December 2021 when Apple barred NFTs from the iOS App Store. He wound down Banq’s operations and the three executives resigned.

In May 2022, Banq sued Purcell, Fortress NFT, and Purcell and Georgiades’ new company Planet NFT for that $17.5 million. Banq claims a breach of trade secrets. This case was sent to arbitration but is now proceeding again. Banq’s opening brief is due on 21 September 2023. [Complaint, PDF; case docket; appeal docket]

In the course of the pivot to NFTs, Banq borrowed $3 million from N9 Advisors. In September 2022, N9 sued to get that money back. This has left Banq without enough money to keep its business running.

N9’s suit is against Banq, Prime Trust, and Jon Jiles — who was the chair of the board at Banq and also the managing member of Prime Trust.

N9 alleges that in July 2021, Jiles threatened to use his family’s controlling interest to assume control of Banq. Jiles then demanded that Purcell sign a non-compete barring him from competing with Prime Trust. N9 says that Purcell, Lehtiniitty, and Georgiades resigned en masse in protest at Jiles’ actions. [Complaint, PDF]

The case has been remanded to Florida’s 17th Circuit. We haven’t found the records of how it’s going there. [Order, PDF]

Banq’s replacement CEO, Joshua Sroge, was the CFO of Binance.US in 2020 and 2021, and the interim CEO after Brian Brooks left. [Protos]

We hope that everyone involved just has a fun time.

Europe really hates Binance

Binance had big plans for expansion in Europe and hoped for licenses in all sorts of markets. But following its woes with US regulators, all of those dreams have come crashing down.

CZ from Binance claimed in 2020 that Binance was allowed to operate in the UK: “we did partner with a local fully regulated entity, so yes … Binance UK is fully regulated by the FCA.” [New Money Review, 2021; YouTube, 2020, 44:39 on]

The FCA kicked Binance out of the UK in June 2021. Binance Markets Limited still existed and had an application in with the FCA. They pulled their application in May 2023 “following intensive engagement from the FCA.” [FT, archive]

The FCA now states that Binance cannot operate in the country: [FCA]

Following the completion of the cancellation of permissions the firm is no longer authorised by the FCA. No other entity in the Binance Group holds any form of UK authorization or registration to conduct regulated business in the UK.

Binance executives in Germany and Austria have jumped ship. Michael Wild, who was planning to expand the business in the German-speaking markets (Germany, Austria, and Switzerland), is no longer the managing director of the local Binance companies. At the European level, several high-ranking managers are also fleeing. [FinanceFWD, in German]

German financial regulator Bafin has denied Binance’s application for a custody license, limiting Binance’s ability to expand or even advertise in the country. [FinanceFWD, in German; Coindesk]

Binance’s Cyprus unit has moved to withdraw its registration with the country’s regulator. Binance said that it was registered with the Cyprus Securities and Exchange Commission in October 2022. But apparently, they never launched their business in the country. [Cyprus SEC; Reuters]

Binance has also quit the Netherlands after the Dutch regulator denied its applications for a virtual asset service provider (VASP) license, which attests that it meets AML guidelines. [Binance, archive]

And Belgium’s financial regulator ordered Binance to cease offering any crypto services of any kind in the country. [Reuters]

In France, Binance got a no-knock raid from the money-laundering cops. Binance wants to assure everyone that no-knock raids without the slightest heads-up are perfectly normal in France! “4. FUD,” tweeted CZ. They really are not normal. [Reuters]

Dubai and Paris have become regional hubs for Binance — The Block details Binance’s many local offices around the world. [The Block]

EU officials suspect that Binance has been setting up numerous shell companies and bank accounts in Ireland and Malta, and using them to funnel money from other countries while dodging regulators and tax authorities. Binance isn’t licensed to operate a crypto exchange in either Ireland or Malta. [Protos]

Everybody else still hates Binance

In the SEC case against Binance, Judge Amy Berman Jackson tells Binance that the court is not going to police the SEC’s press releases: [case docket]

it is not apparent that Court intervention to reiterate that point is needed at this time, or that it is necessary or appropriate for the Court to get involved in wordsmithing the parties’ press releases. Nor is it clear that the agency’s public relations efforts to date will materially affect proceedings in this case.

Judge Jackson has a good handle on how Binance plans to approach this case — by throwing up absolutely all the chaff it possibly can. Jackson isn’t putting up with any of that.

Financial regulators and police in several countries in Europe are helping the US SEC with its investigation. [Protos]

Someone at Binance insider-traded on their own SEC indictment. [Twitter, archive]

CZ says that Binance Nigeria — which was banned in June by the SEC Nigeria — was not in fact a Binance entity. []

Binance cofounder Yi He tells Bloomberg: “If they really took the time to understand our industry, they would see that if Binance isn’t compliant, then practically no other global trading platform or offshore company is.” Yes, that’s correct. [Bloomberg]

BlockFi creditors get spicy

The BlockFi official Unsecured Creditors’ Committee has asked the judge to send BlockFi into Chapter 7 liquidation. They argue that the company has reached a dead end and they’re just burning through creditors’ money now: [Doc 1131, PDF]

The administrative burn is a staggering $16 million per month (on average). The Debtors continue paying, among other things, the salaries to more than 100 individuals – many of whom, to the best of our knowledge, have had little to do but work on their golf game. The Official Committee has repeatedly asked the Debtors to cut the waste. All such requests have been denied, like other forms of cooperative interaction. Mediation has now failed and negotiations are over.

The UCC also asks the judge to unseal the investigative report:

It is time for the Debtors’ unsecured creditors to finally come to know what BlockFi truly was, who Zac Prince truly is, how much he personally profited from the company, and what he and certain of his colleagues were doing (in juxtaposition to what they promised customers) when no one was watching. It is time for the Court to order an end to the burn and, thereby, end the extortion tactics.

Don’t Kwoff

Terraform Labs founder Do Kwon, the guy who crashed all of crypto in May 2022 and was a fugitive from justice until quite recently, will be held in Montenegro for another six months while the Montenegrin local High Court considers extraditing him to South Korea. [RFE, in Bosnian]

In the meantime, Kwon has started his first prison sentence: four months for a local charge of forgery of documents. [Courts of Montenegro, in Montenegrin]

Do Kwon’s arrest in March upended local Montenegrin politics. He wrote a letter from jail saying that crypto “friends” of his — though not him personally! — had financially supported the Europe Now Party. Kwon wrote of “a very successful investment relationship,” funding the party in return for “crypto-friendly policies.”

Europe Now was the frontrunner in the June 11 general election, but its support suffered a major hit when Kwon’s letter came out. Europe Now still came first in the election, but by a much smaller margin than they were hoping for.

Europe Now’s leader, Milojko Spajic, said that Kwon’s claims were false — though Spajic has a history of good words for crypto and there’s a photo of him with Vitalik Buterin. [New York Times]


French journalist Nastasia Hadjadji’s new book on crypto is out! It’s called No Crypto: Comment Bitcoin a envoûté la planète (How Bitcoin captivated the planet). Neither of us can read French, but Nastasia is very cool and the book looks good! [Editions Divergences;]

UK sceptical blockchain academic Peter Howson’s book Let Them Eat Crypto: The Blockchain Scam That’s Ruining the World is also out shortly. [Amazon]

Media stardom

David wrote up something about five books on cryptocurrency and financial crimes for Shepherd. Well, one is The Basilisk Murders — but the LessWrong crew are disconcertingly on-topic in crypto these days. [Shepherd]

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