Jesse Powell

‘Regulators let the bad guys get big’ — former Kraken CEO speaks out after SEC settlement

According to Jesse Powell, U.S. regulators allowing bad actors in the crypto space to “suck up users, revenue and venture capital” could effectively destroy “the good guys.”

Jesse Powell, CEO of crypto exchange Kraken, has called out United States financial regulators for letting “the bad guys” win to suit their agenda.

In a Feb. 19 Twitter thread, Powell speculated that U.S. regulators — seemingly including the Securities and Exchange Commission — were allowing crypto firms to operate without enforcement actions as a red herring for companies that are their true targets. According to the Kraken CEO, allowing bad actors to “suck up users, revenue and venture capital” available to firms operating in accordance with regulations could effectively destroy the industry — letting competition run over each other and having regulators jail violators later.

“The bad guys are actually on-side,” said Powell. “Good guys are the enemy. If the bad guys can run long enough without blowing up, they might just kill the good guys for you.”

Powell’s statement followed Kraken reaching an agreement with the SEC, in which the crypto firm agreed to stop offering staking services or programs to U.S. clients and pay $30 million in disgorgement, prejudgement interest and civil penalties. Many in the crypto space have criticized the SEC’s actions as another example of “regulation by enforcement” — a criticism extended to the regulator cracking down on celebrities endorsing tokens through social media channels.

Related: SEC chair issues warning to crypto firms after action on Kraken staking

In September 2022, Powell announced he would be succeeded as CEO by Kraken’s chief operating officer, Dave Ripley, after which time he would stay with the crypto firm as the chair of the board. Paxos was also reportedly facing enforcement action from the SEC for allegedly violating investor protection laws in dealing with Binance USD (BUSD) stablecoins.

Binance proof of reserves is ‘pointless without liabilities:’ Kraken CEO

According to Powell, a complete proof-of-reserve audit must include the sum of client liabilities, user-verifiable cryptographic proof that each account was included in the sum and signatures proving the custodian’s control over the wallets.

Disclaimer: The article has been updated to reflect Binance CEO CZ’s response to the concerns raised by Kraken CEO Jesse Powell.

The collapse of the crypto exchange FTX revealed the importance of proof of reserves in avoiding situations involving the misappropriation of users’ funds. While exchanges have proactively started sharing wallet addresses to prove the existence of users’ funds, several entrepreneurs, including Kraken CEO and co-founder Jesse Powell, called the practice “pointless” as exchanges fail to include liabilities.

According to Powell, a complete proof-of-reserve audit must include the sum of client liabilities, user-verifiable cryptographic proof that each account was included in the sum and signatures proving the custodian’s control over the wallets. While Kraken’s proof of reserve does allow verification of assets against the company’s liabilities, Powell continues to call out other players that have missed out on including accounts with negative balances.

Powell called out CoinMarketCap in the past for sharing incomplete proof of reserves, as it lacked “cryptographic proof of client balances and wallet control.” He reiterated that reserves are not the list of wallets but assets minus liabilities.

Binance’s recently released proof-of-reserves system allows users to verify their assets using a Merkle tree. However, Powell shared his displeasure as the system failed to include accounts with negative balances, stating that:

“The whole point of this is to understand whether an exchange has more crypto in its custody than it owes to clients. Putting a hash on a row ID is worthless without everything else.”

Moreover, he asked the media and journalists to refrain from “overselling it and misleading consumers.” Instead, he recommended they take the time to understand the motive behind proof of reserves.

On the other hand, few community members refuted Powell’s need for a trusted auditor. Following up on the accusation, Binance CEO Changpeng “CZ’ Zhao refuted by sharing Binance’s upcoming plans that involve third-party auditors to audit the exchange’s proof-of-reserve results.

The response from CZ to the concerns raised by Kraken CEO received positive support from the community. However, some members pointed out the hypocrisy that CZ disabled public commentary on the post that welcomed “questions and checks.”

Related: Crypto exchange Kraken freezes accounts related to FTX and Alameda

On Nov. 19, CZ confirmed to have started working on building a safe centralized exchange (CEX), an idea put forth by Ethereum co-founder Vitalik Buterin.

In this instance, the best-case scenario would be building a system that does not allow crypto exchanges to withdraw a depositor’s funds without consent.

DeFi needs appropriate regulation before moving to retail, says Fed Chair: Finance Redefined

Majority of the top 100 DeFi tokens had a mixed week, with several tokens trading in green on weekly charts, with the total value locked seeing a minor increase of $4 billion.

Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights — a newsletter crafted to bring you significant developments over the last week.

United States Federal Reserve chairman Jerome Powell has given his verdict on the evolution of the DeFi market, claiming there is a definite need for robust regulation before the nascent market could expand to retail.

Maple Finance CEO believes that separating the risk from lending saved DeFi from the market crash. He added that crypto lending has operated as intended through the crypto winter because of the transparency.

Members of the Ooki DAO are discussing various ways to respond to the recent lawsuit filed by the Commodity Futures Trading Commission. Another interesting turn of events from the DeFi ecosystem saw a Maximal Extractable Value (MEV) bot gain massive profits worth $1 million by seizing an arbitrage opportunity. However, it was tricked into authorizing a malicious transaction that drained the funds.

Top 100 DeFi tokens by market cap have a mixed week in terms of price action, where an almost equal number of tokens were trading in green and red on the weekly charts.

DeFi needs appropriate regulation before expanding to retail: Fed Chair Powell

United States Federal Reserve chairman Jerome Powell has spoken out about the expansion of DeFi and its impact on the traditional finance ecosystem, calling for appropriate regulation.

During an event titled the “Opportunities and challenges of the tokenization of finance” hosted by the Banque de France on Tuesday, Jerome Powell said there were “very significant structural issues around the lack of transparency” in the DeFi ecosystem.

Continue reading

MEV bot earns $1M but loses everything to a hacker an hour later

In a Twitter thread, Robert Miller, who works at the research firm Flashbots, shared how an MEV bot with the prefix 0xbadc0de was able to earn 800 Ether (ETH), or around $1 million, through arbitrage trades.

According to Miller, the bot took advantage of a huge arbitrage opportunity that came when a trader attempted to sell $1.8 million in cUSDC through the decentralized exchange (DEX) Uniswap v2 and only got $500 worth of assets in return. The bot detected this chance and immediately sprung to action and gained massive profits.

Continue reading

Maple Finance CEO: Separating risk from lending saved DeFi from market crash

Maple Finance co-founder and CEO Sid Powell says that transparency has been the saving grace of DeFi amid the prolonged crypto market slump.

Speaking to Cointelegraph on the sidelines of the Converge22 conference in San Francisco, Powell noted that throughout the crypto winter, DeFi has continued to operate as intended while centralized finance (CeFi) has become “pretty inactive.”

Continue reading

Ooki DAO members explore options in response to CFTC lawsuit

Members of the decentralized autonomous organization (DAO) known as the Ooki DAO have started looking into an appropriate response to charges filed by the United States Commodities Futures Trading Commission (CFTC).

On Sept. 22, the CFTC announced a $250,000 penalty and settlement with bZeroX, the creators of the decentralized lending platform bZx protocol, which suffered from code exploits in 2020 that led to hundreds of thousands in losses. In addition to this, the CFTC also filed a lawsuit against the Ooki DAO over similar alleged violations of digital asset trading laws.

Continue reading

DeFi market overview

Analytical data reveals that DeFi’s total value locked registered a minor increase from the past week. The TVL value was about $56.28 billion at the time of writing. Data from Cointelegraph Markets Pro and TradingView show that DeFi’s top 100 tokens by market capitalization had a mixed week, with many tokens making a recovery toward the end of the week while a few others traded in red on the weekly charts.

Maker (MKR) was the biggest gainer, registering a 13% gain over the past seven days, followed by Chainlink (LINK) with an 8.8% gain. PancakeSwap (CAKE) continued its bullish momentum registering another 8% weekly surge.

Thanks for reading our summary of this week’s most impactful DeFi developments. Join us next Friday for more stories, insights and education in this dynamically advancing space.

Kraken reiterates hiring targets as CEO denounces ‘woke activists’ in corporate culture

“We recognize that hurt feelings are inevitable in a global organization that is optimizing for team outcomes above individual sentiment,” said the team at Kraken.

On Wednesday, cryptocurrency exchange Kraken announced that it would continue to hire over 500 roles in various departments amid a market downturn. The company’s hiring efforts are in stark contrast to a week of severe layoff announcements from major blockchain firms such as Coinbase, BlockFi, etc. In support of the decision to expand its staff, Kraken said: 

“We have not adjusted our hiring plan, and we do not intend to make any layoffs. We have over 500 roles to fill during the remainder of the year and believe bear markets are fantastic at weeding out the applicants chasing hype from the true believers in our mission.”

However, Jesse Powell, Kraken’s CEO, also expressed critical remarks over a small subset of employees at Kraken, estimated to be 20 out of 3,200 people. As told by Powell: 

“I think we’ve developed some really thoughtful policies that might not appease woke activists but work for the other 99% of the world.”

Powell explained that the said employees possessed great talent, but were not a fit for the company as they were accused of focusing on “minor sights” and “first world problems” instead of the company’s stated mission of bringing financial inclusion to billions of people around the world. “Most people don’t care and just want to work,” said Powell when addressing the various social topics raised by the said subset of employees.

As the year progressed, the cryptocurrency exchange became known for its frank and honest approach to everyday operations. In April, Powell made the decision to close down Kraken’s San Francisco headquarters, citing rampant crime in the area and specifically named the city’s District Attorney Chesa Boudin as being responsible.