LedgerX

Ledger vulnerability put entire DApp ecosystem at risk: Finance Redefined

The Ledger connector vulnerability put the entire DeFi ecosystem at risk, with market experts asking users to remain cautious of using DApps even after Ledger released a patch.

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

The past week in DeFi saw an unprecedented chain of events unfold on Dec. 14 when a malicious actor exploited a vulnerability in the Ledger hardware wallet’s connector library. The exploit put the entire decentralized application (DApp) ecosystem at risk. On-chain analysts and DApps like SushiSwap and MetaMask advised users not to interact with their wallets at all.

Ledger released a patch within hours to contain the vulnerability, but the exploiter drained over $650,000 in assets from multiple victims. However, considering the number of wallets and DApps at risk, the drained amount was considerably lower than it could have been.

CFTC’s Johnson urges Congress to expand commission’s crypto oversight powers

Commodity Futures Trading Commission Kristin Johnson wants to protect customers in a way that reduces the risk of future crises.

Commodity Futures Trading Commission (CFTC) Commissioner Kristin Johnson has urged Congress to adopt legislation that “closes the current gap in the oversight of crypto spot markets.”

During a speech at a digital assets conference at Duke University on Jan. 21, Johnson propose d a number of amendments that would enable the CFTC to conduct “effective due diligence” on businesses, including crypto firms, that want to acquire CFTC-regulated entities.

The commissioner also wants expanded powers for the commodities regulator to enhance customer protection, prevent liquidity crises and mitigate conflicts of interest.

*CFTC Commissioner Kristin Johnson. Source: YouTube*

One of these potential changes would be to give the commodities regulator new powers to investigate any business that wants to purchase 10% or more of a CFTC-registered exchange or clearinghouse.

Johnson highlighted the example of derivatives exchange LedgerX, which became a subsidiary of FTX on Aug. 31, 2021, and is now wrapped up in the crypto exchange’s collapse.

The commissioner notes that the regulator currently has no ability to conduct due diligence on whichever firm buys the business and is merely a passenger as the exchange goes through the sales process.

Johnson also addressed co-mingling of customer funds, which was one of the more egregious accusations levied at FTX following its collapse, calling for regulation that formalizes the obligation of crypto firms to segregate customer funds.

Another gap pointed out by Johnson was in risk management procedures, pointing to the contagion that has continued to spread after major crypto company collapses, such as FTX:

“Interconnectedness among crypto-firms amplified by fragile or non-existent risk management, corporate governance failures, and conflicts of interests at individual firms fuels the likelihood of crises.”

The commissioner argued that current “frameworks such as anti-trust law and regulation may prove too limited in scope” in increasingly diverse markets, and instead advocated for “tailored and effective governance, and risk management controls.”

FTX subsidiaries on auction block including LedgerX attract 117 interested buyers

Four businesses up for sale as part of bankruptcy proceedings include Embed, LedgerX, FTX Japan and FTX Europe.

As many as 117 parties have expressed interest in buying up one or more of FTX’s independently operated subsidiaries including FTX Japan, FTX Europe, LedgerX and Embed.

In a Jan. 8 court filing made by Kevin Cofsky, a partner at Perella Weinberg, the investment bank representing FTX US and affiliated firms. Cofsky stated:

“Approximately 117 parties, including various financial and strategic counterparties globally, have expressed interest to the Debtors in a potential purchase of one or more of the Businesses.”

He added that the debtors have entered into 59 confidentiality agreements with potential counterparties who have expressed interest in any one or more of the companies.

While no firm agreements have been made, they can access information to facilitate due diligence, such as details regarding the business unit’s operations, finances, and technology.

Four businesses up for sale include Embed, LedgerX, FTX Japan, and FTX Europe, according to lawyers representing FTX debtors.

Around 50 parties were interested in Embed, 56 were looking at LedgerX, 41 expressed interest in FTX Japan, and 40 were for FTX Europe, according to the filing.

Embed is a clearing firm that FTX acquired in June 2022 to enhance its stock and equities offerings. LedgerX is Commodity Futures Trading Commission (CFTC) regulated digital currency futures and options exchange and clearinghouse acquired by FTX in August 2021.

FTX Japan and FTX Europe are independent subsidiaries of FTX global but were subject to license and business suspensions in December.

In December, FTX sought permission from a U.S. bankruptcy court to sell off the firm’s Japanese and European branches, in addition to the two clearing companies.

The deadline for submitting initial bids for the four firms is set to expire between Jan. 18 and Feb. 1.

FTX units on auction block draw 117 interested buyers: Court filing

Four businesses up for sale as part of bankruptcy proceedings include Embed, LedgerX, FTX Japan and FTX Europe.

As many as 117 parties have expressed interest in buying up one or more of FTX’s independently operated subsidiaries including FTX Japan, FTX Europe, LedgerX and Embed, according to a court filing.

The court filing was made on Jan. 8 by Kevin Cofsky, a partner at Perella Weinberg, the investment bank representing FTX US and affiliated firms. Cofsky stated:

“Approximately 117 parties, including various financial and strategic counterparties globally, have expressed interest to the Debtors in a potential purchase of one or more of the Businesses.”

He added that the debtors have entered into 59 confidentiality agreements with potential counterparties who have expressed interest in any one or more of the companies.

While no firm agreements have been made, those parties can now access information to facilitate due diligence, such as details regarding the business unit’s operations, finances and technology.

The businesses up for sale are Embed, LedgerX, FTX Japanand FTX Europe, according to lawyers representing FTX debtors.

Around 50 parties were interested in Embed, 56 were looking at LedgerX, 41 expressed interest in FTX Japan and 40 were for FTX Europe, according to the filing.

Embed is a clearing firm that FTX acquired in June to enhance its stock and equities offerings. LedgerX is Commodity Futures Trading Commission-regulated digital currency futures and options exchange and clearinghouse acquired by FTX in August 2021.

FTX Japan and FTX Europe are independent subsidiaries of FTX global but were subject to license and business suspensions in December.

In December, FTX sought permission from a U.S. bankruptcy court to sell off the firm’s Japanese and European branches, in addition to the two clearing companies.

The deadline for submitting initial bids for the four firms is set to expire between Jan. 18 and Feb. 1.

CFTC Chairman Rostin Behnam cites LedgerX as success story amid FTX collapse

”The customer property at LedgerX — the CFTC-regulated entity — has remained exactly where it should be, segregated and secure,” Rostin Behnam said at a hearing on FTX’s failures.

Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam has cited FTX Group’s LedgerX as an example of how regulating crypto firms could benefit United States consumers. The U.S.-based crypto derivatives and clearing platform was not part of its parent company’s recent bankruptcy filing.

At a Dec. 1 hearing of the Senate Agriculture Committee exploring the collapse of FTX, Behnam said LedgerX had essentially been “walled off” from the other companies within FTX Group, including those that filed for bankruptcy. The CFTC chairman said that LedgerX was “healthy,” “solvent,” and “operational” compared to other FTX entities.

“The limitations of our authority stopped at [LedgerX],” said Behnam. “For those same reasons that we were walled off from going past the regulated entity, the other FTX entities were not able to pierce through LedgerX and potentially take customer money, which obviously, as a regulator, is the priority.”

In his written testimony for the hearing, the CFTC chairman said:

“Many public reports indicate that segregation and customer security failures at the bankrupt FTX entities resulted in huge amounts of FTX customer funds being misappropriated by Alameda for its proprietary trading. But the customer property at LedgerX – the CFTC regulated entity – has remained exactly where it should be, segregated and secure. This is regulation working.”

CFTC Chairman Rostin Behnam addressing Senate Agriculture Committee on Dec. 1

Behnan added that FTX had reported in its bankruptcy filings that LedgerX held “more cash than all the other FTX debtor entities combined.” The CFTC chairman, committee chairwoman Michigan Senator Debbie Stabenow and Arkansas Senator John Boozman pointed to the Digital Commodities Consumer Protection Act as a potential solution to the events leading up to FTX’s insolvency, which left many U.S. consumers in the lurch.

“The crypto industry lacks the customer protections that Americans expect and deserve,” said Stabenow. “When trading in U.S. markets, when exchanges accept customer funds for trading they must not be allowed to gamble with those funds. […] FTX did all of those things, emboldened by a lack of federal oversight.”

Since filing for bankruptcy under Chapter 11 in the District of Delaware, FTX has been the target of global regulators and lawmakers investigating the exchange, including Turkey’s Financial Crimes Investigation Agency, authorities in the Bahamas and U.S. state and federal authorities. The U.S. House Financial Services Committee is holding a hearing on Dec. 13 to investigate the events around the collapse of the crypto exchange, with the next court hearing in the bankruptcy case set for Dec. 16.