loans

Winklevoss twins infuse Gemini with $100M personal loan: Report

The cash infusion reportedly followed Gemini attempting to get funding from outside investors without success.

Tyler and Cameron Winklevoss, co-founders of the United States-based cryptocurrency exchange Gemini, have reportedly dipped into their own pockets to fund the business amid the crypto market downturn.

According to an April 10 Bloomberg report, the Winklevoss twins made a personal $100-million loan to Gemini following attempts to get funding from outside investors. Cointelegraph reached out to Gemini for comment, but did not receive a response at the time of publication.

The reported loan came amid regulators scrutinizing Gemini’s activities. In January, the U.S. Securities and Exchange Commission charged Gemini, as well as Genesis Global Capital, with offering unregistered securities through the exchange’s Earn program. New York’s Department of Financial Services also reportedly began investigating the exchange following reports many Gemini users claimed assets in their Earn accounts had been afforded FDIC protection.

Related: Gemini and Genesis’ legal troubles stand to shake up industry further

Following the announcement of the charges, Tyler Winklevoss accused the SEC of issuing a “manufactured parking ticket,” claiming Gemini staff had been in talks with the regulator for more than a year prior to its enforcement action. The complaint echoed that of crypto exchange Coinbase, whose chief legal officer said personnel met with SEC representatives “more than 30 times over nine months” but still received a Wells notice.

Magazine: SBF denies stealing FTX assets, SEC charges Gemini and Genesis, and more

BlockFi to provide over $100K in refunds to California clients

At least 111 BlockFi borrowers had continued repaying loans between Nov. 11 and Nov. 22, even though they didn’t need to, according to court documents.

Bankrupt crypto lender BlockFi has agreed to refund more than $100,000 to California customers that had continued to repay loans even after a trading halt on Nov. 10 last year. 

In a March 27 statement, California’s Department of Financial Protection and Innovation said that its investigation had discovered that at least 111 borrowers in California made roughly $103,471 in loan repayments between Nov. 11 and Nov. 22.

The financial watchdog claimed that BlockFi failed to “provide timely notification to borrowers that they could stop repaying their BlockFi loans.”

The DFPI claims that borrowers were not notified until Nov. 22 that they could stop repaying their BlockFi Loans “until further notice.”

According to documents, BlockFi requested permission from the bankruptcy court to return these payments to the borrowers in a motion filed with the court on Feb. 24.

The refunds will be able to go ahead if the motion is approved, with a hearing scheduled for April 19.

Excerpt from the DFPI agreement filed in court. Source: DFPI

Meanwhile, the DFPI said BlockFi has agreed to an ”interim suspension” of its California Financing Law (CFL) license while “the bankruptcy and revocation actions are pending.”

“If this motion is granted BlockFi agrees to direct the Servicer to timely return borrowers’ payments, including interest and late fees and all funds paid following the November 10th platform pause,” according to the DFPI documents. 

Unless otherwise ruled by the bankruptcy court, the regulator said BlockFi’s agreement to the interim suspension means it will continue to direct its agents to pause the collection of repayments for California customers on loans, interest payments and “not charge, levy, or assess any late fees associated with any payments, including at maturity.”

BlockFi has also agreed to continue not reporting to credit agencies that loans from California residents have become delinquent or defaulted on or after Nov. 11, and will not take “any action that may harm California residents’ credit scores on such loans.”

Related: BlockFi in no immediate danger, despite Silicon Valley Bank exposure: Report

According to the DFPI, Commissioner Clothilde V. Hewlett suspended BlockFi’s lending license for 30 days on Nov. 11 and moved to revoke BlockFi’s CFL license on Dec. 15,.

BlockFi halted client withdrawals and requested clients not to deposit to BlockFi wallets or Interest Accounts on Nov. 10, citing a lack of clarity around the collapse of FTX.

By Nov. 28, BlockFi filed for Chapter 11 bankruptcy for the company and its eight subsidiaries. BlockFi International filed for bankruptcy with the Supreme Court of Bermuda on the same day.

NFT investor accidentally burns $135K CryptoPunk trying to borrow money

While going through the unfamiliar process of wrapping NFTs, Riley accidentally sent the asset to a burn address, permanently deleting the NFT from circulation.

A nonfungible token (NFT) from the CryptoPunks collection worth 77 Ether (ETH) was sent to a burn address to be permanently destroyed. However, the collector intended to borrow some money against it to buy another NFT.

NFT collector Brandon Riley added CryptoPunk #685 to his collection on March 13 by paying 77 ETH, hoping to hold it for the long term.

As a seasoned investor, Riley knew the importance of procuring new NFTs right before crypto markets took off into a new bull market. As a result, he decided to borrow some money against CryptoPunk #685 by using a popular technique known as wrapping.

While going through the unfamiliar process of wrapping NFTs, Riley accidentally sent the asset to a burn address — which permanently deleted the NFT from circulation, as shown below.

Trading history of CryptoPunk $#685. Source: dappradar.com

“I was told to follow the directions exactly, so I did,” explained Riley, but in the process, he ended up losing 77 ETH, which was worth $135,372.16. He explained:

“I was not wrapping this punk to sell it on Blur. It was to be my “forever punk.” The number is exact reverse of my ape. I was only wrapping it because I needed to borrow some liquidity from it.”

While members of Crypto Twitter believed that the NFT collector must have had “deep pockets,” Riley contradicted the rumors by revealing that he had purchased CryptoPunk #685 through borrowed money.

“I just shouldn’t have attempted this on my own, I guess,” was Riley’s takeaway from the experience. On the other hand, Crypto Twitter also blamed confusing user interfaces and complex instructions for the investor’s loss. As a result, the community unanimously agreed on the need to revamp the front-end processes for crypto ecosystems.

Related: Improving Bitcoin NFT marketplace infrastructure sets the stage for ecosystem growth

NFT wash trading increased by 126% in February, confirmed a CoinGecko report. The top six NFT marketplaces are Magic Eden, OpenSea, Blur, X2Y2, CryptoPunks and LooksRare. X2Y2, Blur and LooksRare saw a rise in wash trading for the fourth straight month, with a total volume of $580 million.

NFT wash trading volume, January 2022–February 2023. Source: CoinGecko, Footprint Analytics

As Cointelegraph previously reported, the issue of wash trading stems from a lack of clear regulations.

Magazine: 4 out of 10 NFT sales are fake: Learn to spot the signs of wash trading

Australian Banking Association’s cost of living inquiry reveals bank pressure

An analysis of the rising inflation and concurrent collapse of Silicon Valley Bank proved that more than 186 banks in the U.S. are at risk of a similar shutdown if depositors decide to withdraw all funds.

The trade association for the Australian banking industry — the Australian Banking Association (ABA) — launched a cost of living inquiry to closely study the impact of the COVID-19 pandemic, global supply chain constraints, geopolitical tensions and more on Australians.

An analysis of the rising inflation and concurrent collapse of three major traditional banks — Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank — recently proved that more than 186 banks in the U.S. are at risk of a similar shutdown if depositors decide to withdraw all funds. The ABA’s inquiry aims to identify ways to ease the cost of living in Australia and the Government’s fiscal policy response.

Consumer price index, percentage change from corresponding quarter in previous year, December 2012 – December 2022. Source: ausbanking.org.au

ABA acknowledged that many Australians would struggle to adjust to a higher cost of living, while it may be easier for some, adding that:

“The ABA notes most customers will manage the higher cost of living and their mortgage commitments by changing their spending patterns, applying their accumulated savings to their higher repayments in anticipation of higher borrowing rates, or refinancing their mortgage.”

One of the most significant pressures for banks was when citizens rolled over from a fixed-rate mortgage to a variable rate. However, ABA urged customers to be proactive and ensure they are getting the best deal for their banking services.

Household savings ratio, December 2014 to December 2022. Source: ausbanking.org.au

Property rent across Australia has also witnessed a steady increase as markets normalized following the end of COVID-19 restrictions. Citizens experiencing financial difficulty can contact their banks and get help, including fees and charges waivers, emergency credit limit increases and deferral of scheduled loan repayments, to name a few.

Related: National Australia Bank makes first-ever cross-border stablecoin transaction

Alongside this attempt to cushion Australians against rising fiat inflation, the Reserve Bank of Australia and the Department of the Treasury have been holding private meetings with executives from Coinbase, with discussions revolving around the future of crypto regulation in Australia.

Cointelegraph confirmed from an RBA spokesperson that Coinbase met with the RBA’s payments policy and financial stability departments in mid-March “as part of the Bank’s ongoing liaison with industry.”

Yield platform Stablegains sued for promoting UST: Finance Redefined

DeFi market saw another exploit this past week on the Platypus protocol, resulting in a loss of over $8 million.

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.

The backlash from the Terra implosion still haunts the crypto world, with the now-shuttered stablecoin yield platform Stablegains being sued for customer losses. The plaintiffs allege that the platform funnelled customer funds into Anchor Protocol without users’ knowledge or consent.

Platypus, the DeFi protocol that was exploited for over $8 million, is working on a compensation plan to recover some of the funds.

Florida’s Cogent Bank is proposing a $100 million participation in loans to MakerDAO’s RWA Master Participation Trust.

Bridge protocols were the primary target of exploits last year, amounting to hundreds of millions of dollars worth of stolen funds. Trustless bridges can mitigate the issue, enabling cross-chain transfers without needing a centralized custodian, potentially making it a safer option for interoperability.

After nearly four weeks of a bullish run, the DeFi market is fighting a brave battle against the bears. There were minor price drops, and the market’s overall slightly declined as bears had the upper hand toward the end of the week.

Yield platform Stablegains sued for promoting UST as a ‘safe’ investment

DeFi yield platform Stablegains is being sued in a Californian court for allegedly misleading investors and failing to comply with securities laws.

On Feb. 18, the plaintiffs, Alec and Artin Ohanian, filed a complaint in the United States District Court for the Central District of California, alleging that the shuttered DeFi platform diverted all its customer funds to the Anchor Protocol without their knowledge or consent. Anchor Protocol offered up to 20% yields on Terraform Labs’ algorithmic stablecoin, Terra USD (UST).

Continue reading

Platypus to work on compensation plan after $8.5M attack

The $8.5 million Platypus flash loan attack was made possible because of code that was in the wrong order, according to a post-mortem report from Platypus auditor Omniscia. The DeFi firm is working on a compensation plan for users’ losses after a flash loan attack drained nearly $8.5 million from the protocol, affecting its stablecoin dollar peg.

In a tweet on Feb. 18, Platypus said it was working on a plan to compensate for the damages and asked users not to realize their losses in the protocol, saying this would make it harder for the company to manage the issue. Asset liquidations are also paused, the protocol said.

Continue reading

MakerDAO voting on $100M loan participation with Florida commercial bank

Crypto lending platform MakerDAO is voting on a new proposal to bring another commercial bank into its ecosystem, strengthening the connection between DeFi and traditional finance.

As per MakerDAO’s governance forum, Cogent Bank — a Florida-based commercial bank — proposes to participate with $100 million in loans to MakerDAO’s RWA Master Participation Trust.

Continue reading

DeFi security: How trustless bridges can help protect users

Blockchain bridges allow DeFi users to use the same tokens across multiple blockchains. For example, a trader can use USD Coin (USDC) on the Ethereum or Solana blockchains to interact with those networks’ decentralized applications.

While these protocols may be convenient for DeFi users, they are at risk of exploitation by malicious actors. For example, in the past year, the Wormhole bridge — a popular cross-chain crypto bridge between Solana, Ethereum, Avalanche and others — was hacked, with attackers stealing over $321 million worth of wrapped Ethereum (wETH), the largest hack in DeFi history at the time.

Continue reading

DeFi market overview

Analytical data reveals that DeFi’s total market value dipped below $50 billion this past week. Data from Cointelegraph Markets Pro and TradingView shows that DeFi’s top 100 tokens by market capitalization had a mixed week, with most of the tokens trading in green while a few others bled in red.

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.

Platypus attack exploited incorrect ordering of code, auditor claims

The misordered lines caused a solvency check to be performed before the user’s amount, factor and rewardDebt had been set to zero.

Disclaimer: The article has been updated to reflect that Omniscia did not audit a version of the MasterPlatypusV4 contract. Instead, the company audited a version of the MasterPlatypusV1 contract from Nov. 21 to Dec. 5, 2021.

The $8 million Platypus flash loan attack was made possible because of code that was in the wrong order, according to a post-mortem report from Platypus auditor Omniscia. The auditing company claims the problematic code didn’t exist in the version they audited.

According to the report, the Platypus MasterPlatypusV4 contract “contained a fatal misconception in its emergencyWithdraw mechanism,” which made it perform “its solvency check before updating the LP tokens associated with the stake position.”

The report emphasized that the code for the emergencyWithdraw function had all of the necessary elements to prevent an attack, but these elements were simply written in the wrong order, as Omniscia explained:

“The issue could have been prevented by re-ordering the MasterPlatypusV4::emergencyWithdraw statements and performing the solvency check after the user’s amount entry has been set to 0 which would have prohibited the attack from taking place.”

Omniscia audited a version of the MasterPlatypusV1 contract from Nov. 21 to Dec. 5, 2021. However, this version “contained no integration points with an external platypusTreasure system” and therefore did not contain the misordered lines of code.

It is important to note that the code that was exploited did not exist at the time of Omniscia’s audit. Omniscia’s point of view implies that the developers must have deployed a new version of the contract at some point after the audit was made.

Related: Raydium announces details of hack, proposes compensation for victims

The auditor claims that the contract implementation at Avalanche C-Chain address 0xc007f27b757a782c833c568f5851ae1dfe0e6ec7 is the one that was exploited. Lines 582–584 of this contract appear to call a function called “isSolvent” on the PlatypusTreasure contract, and lines 599–601 appear to set the user’s amount, factor and rewardDebt to zero. However, these amounts are set to zero after the “isSolvent” function has already been called.

The Platypus team confirmed on Feb. 16 that the attacker exploited a “flaw in [the] USP solvency check mechanism,” but the team did not initially provide further detail. This new report from the auditor sheds further light on how the attacker may have been able to accomplish the exploit.

The Platypus team announced on Feb. 16 that the attack had occurred. It has attempted to contact the hacker and get the funds returned in exchange for a bug bounty. The attacker used flashed loans to perform the exploit, which is similar to the strategy used in the Defrost Finance exploit on Dec. 25, 2022.

Bitfarms settles outstanding loan with BlockFi for $7.75M

The Toronto-based Bitcoin mining company has reduced its debt by nearly 85% since June 2022.

Bitcoin (BTC) miner Bitfarms has settled its debt obligations with BlockFi, closing the chapter on its short relationship with the bankrupt cryptocurrency lender. 

On Feb. 9, Bitfarms disclosed that it had settled its $21 million debt obligations with BlockFi for a single $7.75 million cash payment. The settlement was reached weeks after Bitfarms warned that it might default on its BlockFi loan.

“Combined with the earlier restructuring and elimination of our capital expenditure obligations in December, this successful negotiation and settlement furthers our initiatives to reduce indebtedness,” said Jeff Lucas, Bitfarms’ chief financial officer.

Bitfarms’ relationship with BlockFi centers around Backbone Mining Company, its wholly owned subsidiary in Washington state. Backbone Mining received a $32 million equipment financing loan from BlockFi in February 2022. By Jan. 31, 2023, the outstanding principal and interest on the loan totaled $21 million.

Following the settlement, all of Backbone’s assets, including 6,100 miners, are unencumbered.

Cointelegraph reported on Jan. 13 that Bitfarms was seeking to modify its loan agreement with BlockFi to obtain “more favorable terms” and reduce Backbone Mining’s obligations. The original loan facility was secured against Backbone Mining’s assets, including its mining equipment and a percentage of the Bitcoin its rigs produced. The assets securing Backbone Mining’s loan dropped significantly during the bear market.

Related: Blockstream raises $125M to finance expanded Bitcoin mining operations

BlockFi filed for Chapter 11 bankruptcy on Nov. 28, mere weeks after the collapse of crypto exchange FTX. The lender received a $240 million rescue package from FTX US in July 2022, so its fate was seemingly tied to the health of Sam Bankman-Fried’s crypto empire.

Bitfarms seeks to modify loan facility with BlockFi as bear market drags on

“During 2022, Bitfarms began taking proactive actions to increase financial flexibility and to reduce indebtedness and capital expenditure obligations,” according to CFO Jeff Lucas.

Bitcoin (BTC) mining company Bitfarms has unveiled plans to modify an existing loan agreement with BlockFi — a move the company said would reduce its indebtedness amid the bear market.

On Jan. 13, Bitfarms disclosed that it is working with creditors to modify a loan agreement for Backbone Mining Solutions, or BMS, which owns and operates Bitfarms’ 20-megawatt mining facility in Washington state. BMS received a $32 million equipment financing loan from Bitcoin lender BlockFi in February 2022. The loan was secured against existing BMS assets, including its miners and a certain percentage of BTC produced by its mining rigs.

When BMS received the loan facility, Bitcoin was trading north of $40,000. The value of the flagship digital asset has since plunged below $20,000, reaching a low of around $15,600 in November, according to data from Cointelegraph Markets Pro and TradingView.

As a result of the bear market, the assets securing BMS’ loan have fallen to around $5 million, while the outstanding principal and interest are roughly $20 million.

Bitfarms “determined that it would be advisable to seek more favorable terms from BlockFi and potentially take other steps to reduce the BMS obligations,” the company said.

Jeff Lucas, chief financial officer of Bitfarms, further explained:

“Considering today’s challenging market conditions, we are seeking to modify our Washington state debt facility to achieve terms that are better aligned with the market outlook and our business strategy.”

Related: BTC price 3-week highs greet US CPI — 5 things to know in Bitcoin this week

Bitfarms and its subsidiaries hold roughly $36 million worth of unencumbered crypto assets against approximately $47 million worth of debt, which includes the $20 million BlockFi loan. In an effort to cut costs, the company has increased operational efficiency by deploying new miners. 

BlockFi is having difficulties of its own after filing for Chapter 11 bankruptcy in November. The Bitcoin lender shuttered its doors after crypto exchange FTX — its savior during the Terra ecosystem collapse — imploded with little warning.

The fallout of the FTX collapse continues to reverberate across the market. The exchange’s former CEO, Sam Bankman-Fried, faces eight criminal charges and up to 115 years in prison for his alleged role in defrauding investors. 

Public Bitcoin mining companies plagued with $4B of collective debt

The Bitcoin mining community took up massive loans during the 2021 bull market, negatively impacting their bottom lines during a subsequent bear market.

The recent bankruptcy filing of Bitcoin (BTC) miner Core Scientific, despite a $72 million relief offer from creditors, raised questions about the overall health of the Bitcoin mining community amid a prolonged bear market. It turns out, the public Bitcoin miners owe more than $4 billion in liabilities and require an immediate restructuring to get out of the unsustainably high debt levels.

The Bitcoin mining community took up massive loans during the 2021 bull market, negatively impacting their bottom lines during a subsequent bear market. Bitcoin mining data analytics by Hashrate Index show that just the top 10 Bitcoin mining debtors cumulatively owe over $2.6 billion.

Public Bitcoin mining companies with highest debt. Source: Hashrate Index

Core Scientific, the biggest debtor among the lot — with $1.3 billion in liabilities on its balance sheet as of Sept. 30 — recently filed for Chapter 11 bankruptcy protection in Texas due to falling revenue and BTC prices. Marathon, the second-biggest debtor, has $851 million in primarily convertible note liabilities. As a result, Marathon prevents bankruptcy by allowing the debt holders to convert the convertible notes to stocks.

Most Bitcoin miners, including the third-biggest debtor, Greenidge, are undergoing a restructuring process to reduce debt. As an industry, the debt-to-equity ratio of public Bitcoin mining companies reveals high risk.

As pointed out by Hashrate Index, a debt-to-equity ratio of two or higher is considered risky in most industries. The graph below shows the extremely high debt-to-equity ratios currently being sported by some of the prominent Bitcoin miners.

Public Bitcoin mining companies with highest debt-to-equity ratios. Source: Hashrate Index

Considering that more than half of the 25 public Bitcoin miners boast extremely high debt-to-equity ratios, the mining sector may come across potential restructurings and bankruptcy filings unless the bulls make a comeback.

While some companies may shut down or slow down operations to reduce liabilities, it will help sustainable miners expand their footprint as they buy out the competition’s equipment and facilities.

Related: Bitcoin miner Northern Data says it has no financial debt, expects $204M in revenue for 2022

On Dec. 20, Greenidge signed a $74 million debt restructuring agreement with the NYDIG, a fintech firm dedicated to Bitcoin.

As Cointelegraph reported, the NYDIG agreement would see the purchase of miners with approximately 2.8 exahashes per second (EH/s) of mining capacity. In exchange, the mining company would see a debt reduction of $57 million to $68 million.

Tether to reduce secured loans to zero in 2023 amid battle against FUD

The move comes in response to a wave of mainstream media attacks and FUD, primarily from the Wall Street Journal.

The world’s largest stablecoin issuer, Tether, has pledged to eventually stop the practice of lending out funds from its reserves, saying it is “mission critical to restore faith” in the crypto market. 

In a Dec. 13 post, the stablecoin issuer addressed recent mainstream media FUD (fear, uncertainty, and doubt) concerning its secured loans, among other FUD that h hit the “rumor mill.”

Tether reiterated that its secured loans are over-collateralized and covered by “extremely liquid assets,” while also adding that the firm would be eliminating these loans throughout 2023, stating:

Tether is announcing starting from now, throughout 2023, it will reduce secured loans in Tether’s reserves to zero.

Tether’s secured loans operate similarly to private banks lending to customers using secured collateral, the company explained. However, unlike banks that operate on fractional reserves, Tether claimed that its loans are over 100% backed.

The move is likely in response to a Wall Street Journal report earlier this month alleging these loans were risky, claiming that the “company may not have enough liquid assets to pay redemptions in a crisis.”

It is not the first time that the WSJ has targeted Tether. In August the outlet said that Tether could be deemed “technically insolvent” if its assets fell just 0.3%. The stablecoin issuer refuted the claims at the time, stating that it had increased the legitimacy and transparency of its attestations by hiring a top-5 accounting firm.

According to those attestations, 82% of Tether reserves are held in “extremely liquid” assets.

In October, Tether responded to more media FUD by further eliminating commercial paper from its reserves and replacing the investments with U.S. Treasury bills.

Related: Crypto Biz: You can’t stop the Tether FUD

In its most recent statement, the company stated that it will wind down its lending business without losses and continue its mission to prioritize transparency and accountability.

“We will continue to show Tether’s resilience through the most uncertain times, regardless of the story fabrications and disinformation concocted by Tether Truthers and clickbait headlines from mainstream media that have been consistently wrong about Tether, for close to a decade.”

Tether is currently the leading stablecoin issuer, with 65.8 billion USDT circulating. It has a market share of 46.6%, according to CoinGecko.