Crypto collapse: Tether’s new bank Britannia, Binance woes, nobody uses PayPal’s stablecoin, Avi Eisenberg is not getting his phones back

By Amy Castor and David Gerard

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“Blockchain has now led to at least two men being dismembered, one stuffed in a suitcase, and the other flushed down the toilet if you can believe it. If that isn’t a use case I don’t know what is.”

— Boxturret



Tether finds yet another bank

Meet Tether’s newest banking partner: Britannia Bank & Trust, a privately held bank in the Bahamas. [Protos]

This is the third Bahamas-based bank that Tether has used to process US dollar transfers for its $82 billion stablecoin. The other two are Deltec and Capital Union Bank, at least as of March 2023.

The new banking relationship follows Signature Bank shutting down in March and crypto being effectively shut out of the US banking system. Tether was a client of Signature and relied on Signet, the bank’s real-time payment system for crypto exchanges, to do transfers of US dollars.

Britannia Bank is part of the Britannia Financial Group, headquartered in London. The group has been getting into crypto. Its CEO Mark Bruce previously worked at Jump Trading. Earlier this year, Britannia Financial Group acquired crypto trading firm Alphaplate. [Bloomberg, archive]

The founder of Britannia Financial Group is Italian-Venezuelan billionaire Julio Martin Herrera Velutini, who created Britannia by merging several other financial services firms. Last year, the US Department of Justice charged Velutini with bribing Puerto Rican officials. As he awaits trial, his twenty-something son Julio Cesar Herrera has been stepping up to take control of Britannia.

The elder Herrera is also a major donor to the UK Conservative Party through Britannia Financial Group. [BBC, 2022]

Everybody still hates Binance

The SEC has filed a document under seal in its civil suit against Binance, with a huge pile of exhibits attached. [Doc 102; case docket]

This is an extremely rare move for the SEC. John Reed Stark thinks the SEC may be working with the Department of Justice and doesn’t want to do anything that might interfere with a potential criminal investigation. We’re already pretty sure there’s a sealed criminal indictment with CZ’s name on it waiting for him to set foot outside Dubai. [Twitter, archive]

Binance’s BUSD stablecoin is a dead coin walking since Paxos shut down further issuance in February this year. Binance is finally shutting down its remaining pegged copies of BUSD on other blockchains and removing BUSD trading pairs from the exchange. Customers are encouraged to change their BUSD for FDUSD, Binance’s new favorite stablecoin. [Binance]

Binance is using its charity arm to do some academic-washing. Binance Charity has donated $300,000 — in crypto — for a Metaverse Lab at the University of Western Australia and some master’s courses in the School of Business. [Digital Nation]

PYUSD: A coin left in a stable

Nobody uses PayPal’s PYUSD stablecoin, which launched on August 10. Aside from smart contracts and exchanges, only ten holders have a balance of more than $1,000. [The Block]

The price is thin and super shaky, bouncing between $1.00 and $1.01. PYUSD is currently listed on Coinbase, Kraken, and — but volume is on the order of $45,000 per day on $27 million of issuance. [CoinGecko]

Arthur E. Wilmarth Jr., a law professor at George Washington University Law School, says Congress needs to stop PayPal and other non-banks from issuing stablecoins. He thinks a default on PayPal in liabilities — if they had a large issuance, faced a run on the bank, and were unable to redeem their stablecoins — could create a broader financial crisis. All stablecoin issuers should be regulated like banks, he says. We agree. Stablecoins are reminiscent of the wildcat banking era. [American Banker, paywalled, archive]

Not being able to live within 500 feet of a school is a small price to pay for true freedom

We’re beginning to think that Avi Eisenberg, the hotshot DeFi trader who drained Mango Markets of $110 million, may potentially not be the most media-friendly example of a valiant DeFi freedom fighter.

In its response to Eisenberg’s motion to dismiss the criminal charges against him, the US government explains why Avi can’t have his cellphones or laptop back after they were seized in Puerto Rico: [Doc 36, PDF]

While converting data from one of Eisenberg’s cellphones into a readable format, CART employees observed that the device contained child pornography. On or about February 6, 2023, the Government applied for and obtained a second warrant, expanding the scope of the original warrant to search for evidence of offense related to the possession and receipt of child pornography.

… focusing on the full period since the seizure is inappropriate because, as Eisenberg well knows, he is not able to get back his devices because they contain child pornography. The Government found child pornography on one of the Cellphones by early February and has since found child pornography on the Laptop and the other operable Cellphone.

Some in the crypto world are certain the US government planted the material on Eisenberg’s phones. These tend to be the same sort of guys who think the US government somehow entrapped poor innocent 30-year-old bitcoin ancap Cody Wilson into having sex with a 16-year-old. [Twitter, 2019, archive]

But that’s just a side issue here. Almost all normal practice in DeFi has always been straight-up illegal under US law. Almost every token was always an unregistered security.

The prosecution of Eisenberg is extremely bad news for all the DeFi traders who have been conscientiously racking up prosecution futures on permanent public blockchains.

Eisenberg was correct when he said that what he did was entirely normal for DeFi — but it’s also been illegal under Dodd-Frank since 2010. These are actual market crimes with actual victims in those markets.

But worse, the inflated valuations of crypto tokens are accounted as mark-to-market. This makes DeFi shenanigans into large and serious crimes just by their dollar value. Whoops.

That’s arguably unfair because the realizable value of these utterly illiquid magic beans is much lower than their mark-to-market value. Maybe Avi’s lawyer can argue that. But his lawyer can’t argue that what his client did wasn’t illegal.

In fact, Eisenberg’s lawyer can’t even argue that his client didn’t realize that what he was doing was illegal. As the DoJ mentions in their filing, Eisenberg previously sued someone else for the same sort of shenanigans, arguing that the other guy’s actions were illegal under these very laws.

Overflowing the crime counter

Sam Bankman-Fried is so unhappy with his present pre-trial remand conditions that he’s been skipping meetings with his lawyers. The US Government notes: “Remarkably, after only two prior sessions, the defendant declined this week to take advantage of this accommodation, citing dissatisfaction with the conditions that it comes with.” Poor lamb.

Sam’s lawyers complained of the volume of discovery — four million pages of evidence, presented just six weeks before trial. They asked for the fresh evidence to be excluded from the trial.

Judge Lewis Kaplan declined the request. He instead suggested the defense ask for an extension to deal with the extra material if they really wanted one. It turns out they didn’t — they had until September 1 to request a postponement of the trial and didn’t ask for one. If Sam didn’t want four million pages of evidence submitted, a good start would have been not to commit four million pages of crimes. The trial is still on for October 2. [Doc 228, PDF; Doc 238, PDF; Twitter, archive]

Robinhood has agreed with the US Marshal Service to buy back $605.7 million in stock (HOOD) previously owned by Sam through his firm Emergent Development Technologies. The sale was approved by the US District Court for SDNY, as revealed in a recent Robinhood SEC filing. [Form 8-K]

Good news for bitcoin

Grayscale applied to turn GBTC into a bitcoin exchange-traded fund. The SEC rejected Grayscale’s ETF application. Grayscale appealed — and the District of Columbia Court of Appeals has ruled that the SEC’s rejection was “arbitrary and capricious,” given they’d previously allowed a bitcoin futures ETF. This doesn’t mean that Grayscale necessarily gets its ETF — it means that the SEC could appeal the appeal, or it could rule again on Grayscale’s original application, or Grayscale may have to restart the application process from scratch. [Reuters]

The SEC has delayed its response to a pile of other bitcoin ETF applications. [Reuters]

In the Genesis bankruptcy, the unsecured creditors’ committee has made a deal with Genesis and its owner Digital Currency Group that would give creditors recovery of 70% to 90%! If they’re willing to account IOUs from DCG as money — and never mind that’s how Genesis got into this state. If you don’t count the promise of future DCG magic beans, recovery would be on the order of 20%. A lot of other creditors are not happy at all with the deal, including the Gemini exchange, which is currently suing DCG for the money its subsidiary Genesis owes them. [WSJ, archive]

Is there anything NFTs can’t do? Impact Theory just settled with the SEC for offering NFTs in the manner of investment contracts — i.e., securities. Impact Theory paid a disgorgement of $5,120,718.27, prejudgment interest of $483,195.90, and a civil money penalty of $500,000. [Press release; Order, PDF]

Nicholas Weaver has a new post on Lawfare: Tornado Hit by the Department of Justice. [Lawfare]

CoinDesk continues its series of hilarious hopium about the fabulous future potential and nonexistent present-day actuality of bitcoin in El Salvador. In this episode, even vendors in Bitcoin Beach say “cash only.” [CoinDesk]

Stronghold Digital Mining has come up with a new way to make bitcoin mining even more environmentally friendly — burning shredded tires for power. This pumps the air full of dioxins, furans,  and carcinogenic polycyclic aromatic hydrocarbons. But this way, bitcoin can become a tire fire for real. [Guardian]

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3 Comments on “Crypto collapse: Tether’s new bank Britannia, Binance woes, nobody uses PayPal’s stablecoin, Avi Eisenberg is not getting his phones back”

  1. “That’s arguably unfair because the realizable value of these utterly illiquid magic beans is much lower than their mark-to-market value. Maybe Avi’s lawyer can argue that. But his lawyer can’t argue that what his client did wasn’t illegal.”

    Sure, there aren’t enough buyers on the back end, and might never be, to make the mark-to-market value. But the liquidation value is also so low because the theft itself makes everyone distrust the token, and because the thief tries to liquidate it immediately. Steel a million dollar diamond and fence it for $50 and you’re still on the hook for a million dollar theft. Steel 10,000 $100 bills but have them all covered in dye from the dye packet explosion and you might have trouble getting people to accept them at face value as well.

      1. More to the point, the crime in theft is not just gaining something unlawfully but depriving the rightful owner of their possessions: If the stolen diamond is never found, or is “burned in a fire, tomorrow”, the legitimate owner and/or their insurer will have to pay a million dollars to replace it no matter how much it did or didn’t fence for.
        And in the case of the proprietary tokens being stolen and dumped, there is even more at stake than just the stolen tokens, but the value of everyone else’s investment in the business too. The fact that token- and smart-contract-based businesses are in today’s world uniquely vulnerable to this sort of theft and market manipulation is probably legally irrelevant (it’s irrelevant to their status as securities according to the SEC) and certainly morally irrelevant.
        (That it’s an investment they shouldn’t have made because the business is obviously nonviable would be relevant in case of normal business failure, but not in the case of theft or fraud if Bernie Madoff is any indication. Also, the SEC and CFTC have an incentive to toast these guys’ figgins as a deterrent to anyone trying this on a viable business where the value *is* real.)

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