{"id":24532,"date":"2023-01-12T16:25:36","date_gmt":"2023-01-12T16:25:36","guid":{"rendered":"https:\/\/davidgerard.co.uk\/blockchain\/?p=24532"},"modified":"2023-08-09T20:16:47","modified_gmt":"2023-08-09T20:16:47","slug":"crypto-collapse-dcgs-check-kiting-comes-home-to-roost-nexo-raided-voyager-sale-to-binance-progresses-unbanking-the-banked","status":"publish","type":"post","link":"https:\/\/davidgerard.co.uk\/blockchain\/2023\/01\/12\/crypto-collapse-dcgs-check-kiting-comes-home-to-roost-nexo-raided-voyager-sale-to-binance-progresses-unbanking-the-banked\/","title":{"rendered":"Crypto collapse: DCG\u2019s check kiting comes home to roost, Nexo raided, Voyager sale to Binance progresses, unbanking the banked"},"content":{"rendered":"<p><i>By <\/i><b><i>Amy Castor<\/i><\/b><i> and <\/i><b><i>David Gerard<\/i><\/b><\/p>\n<ul>\n<li aria-level=\"1\">We can\u2019t kite our checks like crypto companies do. So please contribute to our Patreons \u2014 here\u2019s<a href=\"https:\/\/www.patreon.com\/amycastor\"> Amy\u2019s<\/a>, and here\u2019s<a href=\"https:\/\/www.patreon.com\/davidgerard\/overview\"> David\u2019s<\/a>.<\/li>\n<li aria-level=\"1\">Our patrons can also get a couple of<a href=\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2021\/05\/bitcoin-it-cant-be-that-stupid.png\"> \u201cBitcoin: It Can\u2019t Be That Stupid<\/a>\u201d stickers just by messaging one of us and asking.<\/li>\n<li aria-level=\"1\">David has<a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2020\/11\/26\/get-signed-copies-of-libra-shrugged-and-attack-of-the-50-foot-blockchain\/\"> signed author copies of his books<\/a> for sale.<\/li>\n<li aria-level=\"1\">Sign up on<a href=\"https:\/\/amycastor.com\/\"> Amy\u2019s blog<\/a> to see every new post she makes as it goes up, and<a href=\"https:\/\/davidgerard.co.uk\/blockchain\/#byemail\"> click here and enter your email address<\/a> for every new post on David\u2019s blog as it goes up.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2023\/01\/12\/crypto-collapse-dcgs-check-kiting-comes-home-to-roost-nexo-raided-voyager-sale-to-binance-progresses-unbanking-the-banked\/kite-at-morecambe-kite-festival-by-dave-craven-cc-by-sa-3-0\/\" rel=\"attachment wp-att-24533\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-24533\" src=\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2023\/01\/kite-at-morecambe-kite-festival-by-dave-craven-cc-by-sa-3-0.jpg\" alt=\"\" width=\"340\" height=\"210\" srcset=\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2023\/01\/kite-at-morecambe-kite-festival-by-dave-craven-cc-by-sa-3-0.jpg 680w, https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2023\/01\/kite-at-morecambe-kite-festival-by-dave-craven-cc-by-sa-3-0-300x185.jpg 300w, https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2023\/01\/kite-at-morecambe-kite-festival-by-dave-craven-cc-by-sa-3-0-348x215.jpg 348w\" sizes=\"auto, (max-width: 340px) 100vw, 340px\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<h3>Blind Spot Markets Live \u2014 11 a.m. UTC, Friday January 13<\/h3>\n<p>Izabella Kaminska&#8217;s new financial newsletter is The Blind Spot. On Fridays, it runs Spot Markets Live \u2014 a large group text chat like the old FT Alphaville Markets Live. David\u2019s on January 13 at 11 a.m. UTC. He\u2019ll be talking about the crypto markets trash fire. You need to login to a website called Coodash. Sign up here. [<a href=\"https:\/\/the-blindspot.com\/spot-market-super-chat\/\"><i>The Blind Spot<\/i><\/a>]<\/p>\n<p><b>Update:<\/b> Went well! Here&#8217;s the transcript. [<i><a href=\"https:\/\/the-blindspot.com\/spot-markets-live-transcript-13-01-23\/\">The Blind Spot<\/a><\/i>]<\/p>\n<h3>DCG, Gemini, and check kiting<\/h3>\n<p><b>How crypto worked in 2022:<\/b><\/p>\n<ol>\n<li aria-level=\"1\">Massive check kiting between all of the players \u2014 write a check you can\u2019t cash, then write a bigger check you can\u2019t cash to cover the first check.<\/li>\n<li aria-level=\"1\">Count the face value of each uncashed check as hundreds of millions of dollars in assets in your reserve.<\/li>\n<li aria-level=\"1\">Pray nobody ever tries to cash one.<\/li>\n<\/ol>\n<p><b>How crypto works in 2023:<\/b><\/p>\n<ol start=\"4\">\n<li aria-level=\"1\">Someone tried to cash one.<\/li>\n<\/ol>\n<p>Last week, Cameron Winklevoss of Gemini <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2023\/01\/06\/crypto-collapse-gemini-vs-dcg-new-york-charges-mashinsky-in-celsius-voyager-sale-troubles-silvergate-troubles-wintermute\/\">tweeted an open letter<\/a> to Digital Currency Group\u2019s Barry Silbert. This week, he tweeted another open letter\u2014 to DCG\u00a0 shareholders. Winklevoss directly accuses DCG of fraud, and calls on the board to fire Silbert as CEO. [<a href=\"https:\/\/twitter.com\/cameron\/status\/1612806661508567042\"><i>Twitter<\/i><\/a><i>; <\/i><a href=\"https:\/\/assets.ctfassets.net\/jg6lo9a2ukvr\/7iwDdJ1D88ZUVCqVJzocDL\/394114442846c3daccc7b05978e267e0\/2023-01-10_-_Gemini_-_Open_Letter_to_DCG_Board.pdf\"><i>Gemini<\/i><\/a><i>, PDF, <\/i><a href=\"https:\/\/web.archive.org\/web\/20230111180603\/https:\/\/assets.ctfassets.net\/jg6lo9a2ukvr\/7iwDdJ1D88ZUVCqVJzocDL\/394114442846c3daccc7b05978e267e0\/2023-01-10_-_Gemini_-_Open_Letter_to_DCG_Board.pdf\"><i>archive<\/i><\/a>]<\/p>\n<p>\u201cHow did we get here? Greed.\u201d Well indeed, Cameron.<\/p>\n<p>Cameron and Tyler Winklevoss knew in July 2022 that DCG had written Genesis a $1.1 billion internal IOU \u2014 or so said Matt Levine from Bloomberg, citing The Information. But Gemini didn\u2019t withdraw its client\u2019s money then. Instead, it took a chance that everything would be fine! Then FTX blew up in November and Genesis froze withdrawals. Levine: \u201cIf you trusted the IOU in July, you probably feel foolish now. Winklevoss sure seems to.\u201d [<a href=\"https:\/\/www.bloomberg.com\/opinion\/articles\/2023-01-10\/crypto-banks-owe-themselves-money\"><i>Bloomberg<\/i><\/a><i>; <\/i><a href=\"https:\/\/www.theinformation.com\/articles\/inside-the-rise-and-fall-of-geminis-risky-earn-accounts-that-left-900-million-of-customer-money-in-limbo\"><i>The Information<\/i><\/a><i>, paywalled<\/i>]<\/p>\n<p>On page 4 of Cameron\u2019s letter, he calls Grayscale \u201cBarry\u2019s financial Hotel California.\u201d Good to know <a href=\"https:\/\/amycastor.com\/2022\/04\/19\/welcome-to-grayscales-hotel-california\/\">he\u2019s reading Amy\u2019s stuff.<\/a><\/p>\n<p>Silbert sent a letter to DCG shareholders shortly after. His letter does not in any way address the Winklevoss claims. [<a href=\"https:\/\/dcgupdate.com\/\"><i>DCGupdate<\/i><\/a><i>, <\/i><a href=\"https:\/\/archive.is\/fB2Yo\"><i>archive<\/i><\/a>]<\/p>\n<p>Silbert wants us to believe that DCG subsidiaries operate as fully independent enterprises. \u201cTo be abundantly clear, DCG does not direct any trades, loans, or borrows for Genesis\u2019 business.\u201d Sam Bankman-Fried said the same thing about FTX\u2019s various businesses.<\/p>\n<p>Silbert claims that DCG loans to Genesis were structured on an arm\u2019s length basis. 1% interest on a $1.1 billion IOU is not arm\u2019s length.<\/p>\n<p>\u201cDCG has never had a relationship with Three Arrows Capital.\u201d Well, except that 3AC was Genesis\u2019 biggest customer, with a $2.36 billion loan in 2022. And in On December 30, 2020, 3AC had a $1 billion position on GBTC, according to Grayscale\u2019s SEC filings. [<a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1814546\/000110465921000026\/tm2039668d1_sc13ga.htm\"><i>SEC<\/i><\/a>]<\/p>\n<p>Silbert says the promissory note from DCG to Genesis is not callable, and does not contain any other similar features of a callable bond.<\/p>\n<p>On January 8, Gemini terminated the Master Loan Agreement with Genesis and emailed customers accordingly. This \u201crequires Genesis to return all outstanding assets in the program.\u201d Genesis did not return the funds by the end of January 10 \u2014 so they were officially in default on the loan. At this point, Genesis can pull the pin and try to put Gemini into involuntary bankruptcy.\u00a0 [<a href=\"https:\/\/twitter.com\/tier10k\/status\/1612897226220765184\/photo\/1\"><i>Twitter<\/i><\/a>]<\/p>\n<p>RedeemGBTC is a group of GBTC holders trying to pressure DCG\u2019s Grayscale into stepping down as manager of the trust and liquidating GBTC shares back into bitcoins. The trouble is, Grayscale is under no legal obligation to do that \u2014 no matter if 90% of GBTC holders want it to liquidate. (DCG is the other 10%.) [<a href=\"https:\/\/www.redeemgbtc.com\/\"><i>RedeemGBTC<\/i><\/a><i>; <\/i><a href=\"https:\/\/blockworks.co\/news\/gbtc-takeover-attempts-explained\"><i>Blockworks<\/i><\/a>]<\/p>\n<p>Gemini added trading on tethers to their exchange at 6 p.m. ET on January 10. Not available to New York customers. [<a href=\"https:\/\/www.gemini.com\/prices\/tether\"><i>Gemini<\/i><\/a>]<\/p>\n<h3>Nexo is nexto<\/h3>\n<p>Nexo is another dodgy CeFi crypto &#8220;lender&#8221; targeting ordinary investors in the manner of Celsius and Voyager \u2014 complete with unfeasible interest rates.<\/p>\n<p>As is standard in crypto, Nexo is only solvent if you count its internal supermarket loyalty card points, the $NEXO token, as money.<\/p>\n<p>Nexo didn\u2019t offer services in its native Bulgaria \u2014 but this didn\u2019t protect them. On the morning of Thursday January 12, Nexo&#8217;s offices in Bulgaria and at least some of the homes of the owners \u2014 \u201cmore than 15 addresses,\u201d according to the <a href=\"https:\/\/en.wikipedia.org\/wiki\/Office_of_the_General_Prosecutor_of_Bulgaria\">General Prosecutor\u2019s office<\/a> \u2014 were raided by prosecutors, investigators and &#8230; counterintelligence agents. [<a href=\"https:\/\/btvnovinite.bg\/bulgaria\/specakcija-tri-adresa-se-proverjavat-na.html\"><i>BTV Novinite<\/i><\/a><i>, in Bulgarian; <\/i><a href=\"https:\/\/nova.bg\/news\/view\/2023\/01\/12\/397297\/%D1%81%D0%BF%D0%B5%D1%86%D0%B0%D0%BA%D1%86%D0%B8%D1%8F-%D0%B2-%D1%81%D0%BE%D1%84%D0%B8%D1%8F-%D0%BF%D1%80%D0%BE%D0%B2%D0%B5%D1%80%D1%8F%D0%B2%D0%B0%D1%82-%D0%BE%D1%84%D0%B8%D1%81%D0%B8-%D0%BD%D0%B0-%D1%84%D0%B8%D1%80%D0%BC%D0%B0-%D1%82%D1%8A%D1%80%D0%B3%D1%83%D0%B2%D0%B0%D1%89%D0%B0-%D1%81-%D0%BA%D1%80%D0%B8%D0%BF%D1%82%D0%BE%D0%B2%D0%B0%D0%BB%D1%83%D1%82%D0%B0\/\"><i>Nova<\/i><\/a><i>, in Bulgarian<\/i>]<\/p>\n<p>The General Prosecutor\u2019s office said: &#8220;Active actions are being carried out in Sofia to neutralize the illegal criminal activity of the cryptobank Nexo. It established and maintains an international platform for exchanging and lending cryptocurrency. The main organizers of this activity are Bulgarian citizens and the main activity is carried out from the territory of Bulgaria. The cryptobank operates through multiple registered companies, and the vast majority of them are mailboxes \u2014 shell companies.&#8221; [<a href=\"https:\/\/nova.bg\/news\/view\/2023\/01\/12\/397313\/%D0%BC%D0%B8%D0%BB%D0%B5%D0%B2%D0%B0-%D0%B7%D0%B0-%D0%BF%D0%B5%D1%82-%D0%B3%D0%BE%D0%B4%D0%B8%D0%BD%D0%B8-%D0%BF%D1%80%D0%B5%D0%B7-nexo-%D1%81%D0%B0-%D0%BF%D1%80%D0%B5%D0%BC%D0%B8%D0%BD%D0%B0%D0%BB%D0%B8-%D0%BD%D0%B0%D0%B4-94-%D0%BC%D0%BB%D1%80%D0%B4-%D0%B4%D0%BE%D0%BB%D0%B0%D1%80%D0%B0-%D0%BA%D0%BB%D0%B8%D0%B5%D0%BD%D1%82-%D0%B5-%D1%84%D0%B8%D0%BD%D0%B0%D0%BD%D1%81%D0%B8%D1%80%D0%B0%D0%BB-%D1%82%D0%B5%D1%80%D0%BE%D1%80%D0%B8%D1%81%D1%82%D0%B8%D1%87%D0%BD%D0%B8-%D0%B0%D0%BA%D1%82%D0%BE%D0%B2%D0%B5\/\"><i>Nova<\/i><\/a><i>, in Bulgarian<\/i>]<\/p>\n<p>300 people in the General Prosecutor\u2019s office are working on the Nexo case, with 35 investigators from other agencies.<\/p>\n<p>The action is apparently part of an international operation \u2014 investigating whether Nexo is part of a large-scale scheme for financial crimes, money laundering and violation of international sanctions against Russia. [<a href=\"https:\/\/www.mediapool.bg\/aktsiya-na-mvr-i-prokuraturata-sreshtu-kriptobankata-nekso-news343781.html\"><i>Mediapool<\/i><\/a><i>, in Bulgarian<\/i>]<\/p>\n<p>Nexo\u2019s owners, <a href=\"https:\/\/en.wikipedia.org\/wiki\/Antoni_Trenchev\">Antoni Trenchev<\/a> (a former Reform Bloc MP) and Kosta Kanchev, just happened to relocate themselves to Dubai in Fall 2022.<\/p>\n<p>Nexo\u2019s current corporate strategy is to tweet through it. \u201cUnfortunately, with the recent regulatory crackdown on crypto, some regulators have recently adopted the kick first, ask questions later approach. In corrupt countries, it is bordering with racketeering, but that too shall pass.\u201d Okay. [<a href=\"https:\/\/twitter.com\/Nexo\/status\/1613477462243147776\"><i>Twitter thread<\/i><\/a>]<\/p>\n<p>Nexo is already being sued by multiple US regulators, who <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2022\/09\/29\/crypto-collapse-states-bust-nexo-terras-do-kwon-on-the-run-celsius-ceo-resigns-ftx-buying-voyager-and-eyeing-celsius-eth-miners-screwed\/\">brought suit in September.<\/a> Nexo withdrew from the US market altogether in December. [<a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2022-12-05\/crypto-lender-nexo-to-exit-us-after-facing-regulatory-scrutiny\"><i>Bloomberg<\/i><\/a><i>, 2022<\/i>]<\/p>\n<p>The Nexo website is still up. Are withdrawals working for anyone? [<a href=\"https:\/\/nexo.io\"><i>nexo.io<\/i><\/a>]<\/p>\n<h3>Voyager for sale<\/h3>\n<p>Judge Michael Wiles in New York is allowing Voyager Digital to enter into an asset purchase agreement with Binance US. Under the deal, Binance US would take over $1 billion in Voyager customer assets, giving creditors a chance to cash out in six months. Voyager still has to get approval from creditors. The Unsecured Creditors\u2019 Committee considers this a big win. [<a href=\"https:\/\/twitter.com\/VoyagerUCC\/status\/1612824154209746944\"><i>Twitter thread<\/i><\/a>]<\/p>\n<p><a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2023\/01\/06\/crypto-collapse-gemini-vs-dcg-new-york-charges-mashinsky-in-celsius-voyager-sale-troubles-silvergate-troubles-wintermute\/\">Multiple regulators objected to the deal.<\/a> But lawyers for Voyager said the regulators don\u2019t understand how desperate Voyager is: \u201cThe Objections ignore the practical realities of these chapter 11 cases and fail to identify any transaction that provides a better outcome for the Debtors\u2019 creditors. There is none.\u201d [<a href=\"https:\/\/document.epiq11.com\/document\/getdocumentsbydocket?docketId=979798&amp;projectCode=VDH2&amp;docketNumber=831&amp;source=DM\"><i>Doc 831<\/i><\/a><i>, PDF<\/i>]<\/p>\n<p>Voyager says it\u2019s working through CFIUS\u2019 objections to the sale on national security grounds.<\/p>\n<h3>Celsius: \u201cAnswer the question, Mr. Mashinsky. That wasn\u2019t the question.\u201d<\/h3>\n<p>Jason Stone of KeyFi was Celsius Network\u2019 lead DeFi trader \u2014 at times, Celsius was the third largest player in the DeFi markets. <a href=\"https:\/\/amycastor.com\/2022\/07\/09\/crypto-collapse-3ac-voyager-celsius-and-other-defi-casualties\/\">Stone sued Celsius<\/a> for not paying him, and <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2022\/08\/28\/crypto-collapse-celsius-sues-keyfi-blockfis-ftx-deal-scaramuccis-skybridge-voyager-suit-3ac-going-to-jail\/\">Celsius countersued.<\/a><\/p>\n<p>The suits between KeyFi and Celsius were heard on Wednesday, January 11, in front of Judge Martin Glenn.<\/p>\n<p>Alex Mashinsky was on the stand and didn\u2019t make a friend of Judge Glenn: \u201cAnswer the question, Mr. Mashinsky. That wasn\u2019t the question.\u201d<\/p>\n<p>Mashinsky claims he never once looked at the Celsius general ledger spreadsheet while he was CEO. Okay.<\/p>\n<p>There were a couple of live-tweet threads, from David Adler and Cam Crews. [<a href=\"https:\/\/twitter.com\/DavidJAdler1991\/status\/1613186083906531328\"><i>Twitter<\/i><\/a><i>; Twitter<\/i>]<\/p>\n<p>The Examiner\u2019s final report on Celsius is due January 30. We don\u2019t think if it was ever settled if the examiner should look into whether Celsius was operating as a Ponzi scheme. [<a href=\"https:\/\/cases.stretto.com\/public\/x191\/11749\/PLEADINGS\/1174901112380000000275.pdf\"><i>Order<\/i><\/a><i>, PDF<\/i>]<\/p>\n<h3>Laughter is the best medicine, so SBF posting through it is effective altruism<\/h3>\n<p>Sam Bankman-Fried is no longer just tweeting through it \u2014 he\u2019s launched a Substack. Everything is Caroline Ellison\u2019s and CZ from Binance\u2019s fault, and not in any way smol bean Sam\u2019s. Also, FTX US is apparently fully solvent! [<a href=\"https:\/\/sambf.substack.com\/p\/ftx-pre-mortem-overview\"><i>Substack<\/i><\/a>]<\/p>\n<p>This is really Sam&#8217;s \u2014 he tweeted the link. So sign up today for Sam\u2019s new Substack, \u201cmycrimes.txt.\u201d [<a href=\"https:\/\/twitter.com\/SBF_FTX\/status\/1613522399269650434\"><i>Twitter<\/i><\/a>]<\/p>\n<p>Molly White live-tweeted the January 11 hearing in FTX&#8217;s bankruptcy. The main substantive outcome is that the list of creditor names will remain sealed for another three months while they try to work out the possible harm to individuals in revealing them. [<i><a href=\"https:\/\/twitter.com\/molly0xFFF\/status\/1613175493259415553\">Twitter<\/a><\/i>]<\/p>\n<p>FTX top engineer Nishad Singh has met with prosecutors in a proffer session \u2014 spill the beans and see if it\u2019s worth it for them to offer you a plea deal. He\u2019s the third of the FTX inner circle to turn against Sam in an effort to save his own skin. [<a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2023-01-10\/third-bankman-fried-associate-nishad-singh-met-with-prosecutors\"><i>Bloomberg<\/i><\/a>]<\/p>\n<p>The FTX case is so sprawling it could exhaust the resources of the Southern District of New York \u2014 since it includes potential bribery, campaign contribution violations, and market manipulation on top of theft and fraud. [<a href=\"https:\/\/twitter.com\/CGasparino\/status\/1612449174225551361\"><i>Twitter<\/i><\/a>]<\/p>\n<p>The SEC is now investigating venture firms who invested in FTX, to check the \u201cdue diligence\u201d they all swore blind they\u2019d bothered to do. [<a href=\"https:\/\/www.reuters.com\/technology\/us-securities-regulator-probes-ftx-investors-due-diligence-sources-2023-01-05\/\"><i>Reuters<\/i><\/a>]<\/p>\n<h3>Unbanking the banked: Metropolitan jumps ship<\/h3>\n<p>The Federal Reserve, the FDIC and the OCC issued a \u201cJoint Statement on Crypto-Asset Risks to Banking Organizations\u201d on January 3.<\/p>\n<p>A bank holding or <i>issuing<\/i> crypto-assets \u2014 <i>e.g.,<\/i> Silverbank\u2019s plan to issue a retail Diem stablecoin \u2014 \u201cis highly likely to be inconsistent with safe and sound banking practices.\u201d<\/p>\n<p>Phrases like \u201csignificant safety and soundness concerns\u201d are how a bank regulator says \u201cyour charter is at risk.\u201d [<a href=\"https:\/\/www.federalreserve.gov\/newsevents\/pressreleases\/files\/bcreg20230103a1.pdf\"><i>Federal Reserve<\/i><\/a><i>, PDF<\/i>]<\/p>\n<p>The regulators didn\u2019t want to \u201cprohibit or discourage\u201d merely providing banking services to the crypto sector. But Metropolitan Commercial Bank announced on January 9 that it \u201cwill fully exit the crypto-asset related vertical.\u201d It\u2019s dumped all crypto clients, and will not be touching the area henceforth.<\/p>\n<p>Metropolitan previously got dragged into the Voyager Digital bankruptcy, because they were Voyager&#8217;s US dollar banker. Voyager&#8217;s deposits were FDIC insured (in the event of Metropolitan failing) \u2014 so Voyager lied to their customers that the customers were FDIC insured in case <i>Voyager<\/i> failed!<\/p>\n<p>Between Voyager, Silvergate Bank&#8217;s FTX issues, and the regulator letter, Metropolitan has said &#8220;LOL nah.&#8221; [<a href=\"https:\/\/www.businesswire.com\/news\/home\/20230109005186\/en\/\"><i>press release<\/i><\/a>]<\/p>\n<h3>Signature Bank is going fine<\/h3>\n<p>The Silvergate Exchange Network is how a lot of US crypto companies clear US dollar transactions between themselves. Signature Bank of New York operates a similar network, called Signet. This is actually a private blockchain \u2014 <del>apparently based on Facebook\u2019s old <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/libra\/\">Libra\/Diem<\/a> code.<\/del> (<strong>Update:<\/strong> it&#8217;s actually a private Ethereum instance.) Dirty Bubble summarizes the problems that Signet has led to. [<a href=\"https:\/\/dirtybubblemedia.substack.com\/p\/signs-of-trouble-at-signature-bank\"><i>Dirty Bubble Media<\/i><\/a>]<\/p>\n<p>Access to Signet requires a \u201cstrenuous\u201d KYC\/AML process. This \u201cstrenuous\u201d process allowed in such high-quality clients as multiple FTX entities.<\/p>\n<p>Once these FTX-quality entities are inside Signet, they can do whatever they like, and move internal stablecoin dollars around with no meaningful constraints or monitoring. Never mind that Signature promised New York strong monitoring to be allowed to run Signet at all. [<a href=\"https:\/\/www.dfs.ny.gov\/reports_and_publications\/press_releases\/pr1812041\"><i>NY DFS<\/i><\/a>]<\/p>\n<p>Signature was also heavily involved in the TrueUSD stablecoin, mostly used by Justin Sun and Alameda Research. [<a href=\"https:\/\/medium.datadriveninvestor.com\/binances-billions-are-backed-but-you-re-probably-asking-the-wrong-question-df7c19e652ae\"><i>Medium<\/i><\/a><i>; <\/i><a href=\"https:\/\/cryptadamus.substack.com\/p\/signature-bank-ftx-and-trueusd-a\"><i>Cryptadamus<\/i><\/a>]<\/p>\n<p>Deltec\u2019d has noticed that Signature was letting Binance bank with them under the name of a defunct corporation. Whoops! [<a href=\"https:\/\/medium.com\/@ExkrementKoin\/is-signature-bank-still-banking-binance-com-e22b534ba983\"><i>Medium<\/i><\/a>]<\/p>\n<p>Signature has announced that it will be attempting to sell off $10 billion of its $25 billion of crypto customer deposits. \u201cWe are not just a crypto bank and we want that to come across loud and clear,\u201d said CEO Joe DePaolo. Okay. [<a href=\"https:\/\/www.coindesk.com\/business\/2022\/12\/06\/signature-bank-to-reduce-crypto-tied-deposits-by-as-much-as-10-billion\/\"><i>CoinDesk<\/i><\/a>]<\/p>\n<h3>Silvergate Bank is going fine<\/h3>\n<p>Silvergate got bailed out by the Federal Home Loan Bank, in a $4.3 billion loan secured on \u201cgovernment securities\u201d. [<a href=\"https:\/\/www.americanbanker.com\/news\/silvergate-bank-loaded-up-on-4-3-billion-in-fhlb-advances\"><i>American Banker<\/i><\/a><i>; <\/i><a href=\"https:\/\/ir.silvergate.com\/news\/news-details\/2023\/Silvergate-Announces-Select-Preliminary-Fourth-Quarter-2022-Financial-Metrics-and-Provides-Business-Update\/default.aspx\"><i>Silvergate<\/i><\/a>]<\/p>\n<p>Frances Coppola read over <a href=\"https:\/\/amycastor.com\/2023\/01\/08\/crypto-collapse-dcgs-problem-is-grayscale-ftx-bahamas-agreement-defi-trading-arrest-silvergate-bank-huobi-binance\/\">Silvergate\u2019s recent SEC 8-K filings.<\/a> She tells us how these filings, after the 10-Q for third quarter of 2022, are bad news indeed: [<a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1312109\/000131210923000011\/si-20230105.htm\"><i>SEC 8-K<\/i><\/a><i>; <\/i><a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1312109\/000131210923000011\/ex991silvergateannouncesse.htm\"><i>SEC 8-K<\/i><\/a><i>; <\/i><a href=\"https:\/\/www.sec.gov\/ix?doc=\/Archives\/edgar\/data\/1312109\/000131210922000206\/si-20220930.htm\"><i>SEC 10-Q<\/i><\/a>]<\/p>\n<blockquote><p>\u201cThe 10-Q shows massive fair value losses on availability for sale securities. Lack of liquidity follows from insolvency. No-one will lend to a bank they suspect is insolvent. On these financials, Silvergate must be finding borrowing expensive. No wonder they had to sell assets at a discount. A solvent bank shouldn&#8217;t have to do that.<\/p>\n<p>\u201cAccording to its 8-K filing, Silvergate didn&#8217;t sell assets to maintain liquidity, it borrowed, firstly from wholesale markets (that would have been expensive, LOL) and secondly by issuing bonds. The accounts due on 17th January will show a large increase in debt and a corresponding reduction in capital. We know the bonds were issued at a heavy discount, so the interest expense must be punitive. It&#8217;s now cutting its expense base hard. This doesn&#8217;t look good to me.<\/p>\n<p>\u201cThe public letter dated 5th December (8-K 12\/5\/22) is hilarious. If they did the due diligence they say they did, they must have known the payments to Alameda were fraudulent. This will come back to haunt them, I think.\u201d<\/p><\/blockquote>\n<p>&nbsp;<\/p>\n<p><i>Image: <\/i><a href=\"https:\/\/commons.wikimedia.org\/wiki\/File:Kite_at_Morecambe_Kite_Festival.jpg\"><i>A kite being flown at the Morecambe Kite Festival 2011<\/i><\/a><i> by Dave Craven, CC-by-sa 3.0.<\/i><\/p>\n<br><br><div align=\"center\"><p><a href=\"https:\/\/www.patreon.com\/bePatron?u=8420236\"><img src=\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2021\/10\/become_a_patron_button.svg\" alt=\"Become a Patron!\" title=\"Become a Patron!\" width=217 height=51><\/a><br><p style=\"align:center;\" class=\"patreon-badge\"><i>Your subscriptions keep this site going. <a href=\"https:\/\/www.patreon.com\/bePatron?u=8420236\">Sign up today!<\/a><\/i><\/p><\/div>","protected":false},"excerpt":{"rendered":"<p>Don\u2019t cash it until 2032, okay.<\/p>\n","protected":false},"author":1,"featured_media":24533,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[3016,2653,2493,460,3385,1481,568,988,916,2031,3136,1515,1798,3093,652,2890,1799,29,3193,1116,3195,3386,128,3137,3387,594,2520,3346,1829,3384,2491,33,3388,1545,39,522,745,2697,328],"class_list":["post-24532","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorised","tag-3ac","tag-alameda","tag-alex-mashinsky","tag-amy-castor","tag-antoni-trenchev","tag-barry-silbert","tag-binance","tag-bulgaria","tag-celsius","tag-dcg","tag-fdic","tag-federal-reserve","tag-ftx","tag-gbtc","tag-gemini","tag-genesis","tag-grayscale","tag-izabella-kaminska","tag-jason-stone","tag-justin-sun","tag-keyfi","tag-kosta-kanchev","tag-matt-levine","tag-metropolitan-commercial-bank","tag-michael-wiles","tag-new-york","tag-nexo","tag-nishad-singh","tag-occ","tag-redeemgbtc","tag-sam-bankman-fried","tag-sec","tag-signature-bank","tag-silvergate-bank","tag-tether","tag-trueusd","tag-united-states","tag-voyager-digital","tag-winklevoss-twins"],"jetpack_featured_media_url":"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2023\/01\/kite-at-morecambe-kite-festival-by-dave-craven-cc-by-sa-3-0.jpg","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/24532","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/comments?post=24532"}],"version-history":[{"count":33,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/24532\/revisions"}],"predecessor-version":[{"id":25841,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/24532\/revisions\/25841"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/media\/24533"}],"wp:attachment":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/media?parent=24532"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/categories?post=24532"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/tags?post=24532"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}