For our Thursday episode where we discuss the latest in crypto news, we hashed out some of FTX’s latest potential M&A actions, executive departures and fundraising plans. We specifically dug into FTX’s purchase of Voyager’s assets in a bankruptcy auction. The team also dug into some tough regulatory action against Nexo and the latest news around the Fed’s potential embrace of a Digital Dollar.
Welcome to Chain Reaction, where we unpack and explain the latest in crypto news, drama and trends, breaking things down block by block for the crypto curious.
For our Thursday episode where we discuss the latest in crypto news, we hashed out some of FTX’s latest potential M&A actions, executive departures and fundraising plans. We dug into FTX’s purchase of Voyager’s assets in a bankruptcy auction. We also discussed.
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Jacquelyn Melinek 0:03
Hey everyone, it's Jackie and Anita and Lucas. Welcome to chain reaction, where we unpack and explain the latest in crypto news drama and trends breaking things down block by block for the crypto curious. We've got some exciting news today. Chain Reaction is now fully New York based Lucas, do you want to tell us about your move?
Lucas Matney 0:24
Yes. After six years in the bay, I have joined the rest of the team on the east coast. So it'll be on Eastern Time, which I think makes our lives a little bit easier. But also, there's just a lot more happening here in general, and in crypto. You know,
Anita Ramaswamy 0:38
where we stand on the whole debate. I guess that's going on on Twitter. Yeah, what cities fast, but
Lucas Matney 0:43
I love SF to death. And I was sad to leave. But New York's got a lot going on. I'm pretty psyched. Yeah.
Jacquelyn Melinek 0:48
Well, we're happy to have you here, Lucas, and I'm sure we'll be seeing you out at all the crypto events that we are constantly attending.
Lucas Matney 0:55
Most definitely, yeah, no, I'm always jealous of all of the conferences and happy hours and get togethers that you guys have out here. So I finally get to live out the FOMO. But yeah, I mean, a lot of people in New York in the crypto world, I think we're seeing a big shift to Miami, some places like that. We've got some news on FTX. That's been making a lot of moves this week.
Anita Ramaswamy 1:15
Yeah. FTX is like always making moves. But this week, even more so than usual. I feel like they've been extremely active throughout the whole crypto winter situation, and their name just keeps coming up. But speaking of location changes, so apparently, their US office is going to be moving to Miami after some time in Chicago, which for me, personally, I honestly didn't even realize that they were not in Miami in the first place with like, the FTX arena, and all of the, you know, the connection to their global HQ in the Bahamas and everything like that.
Lucas Matney 1:43
Yeah, how brutal was it that they were in the Bahamas and the US team had to hang out in the freezing streets of Chicago. That is like the deal is getting a little bit better now for the team. Yeah, totally.
Anita Ramaswamy 1:53
But there's other exciting stuff in the works for the exchange, also, which one piece of news, which there's a lot of news on them is that they are apparently Bloomberg reported in talks to raise another round of $1 billion dollars, and their current valuation is 32 billion. So I guess it's still sort of TBD. like we'll have to see what valuation they raise that if they actually do end up closing the round. But they need all of that cash for something, which is that, you know, Sam Venkman, freed, he's been kind of the guy like bailing out a lot of these failing crypto lenders. As you know, we've seen a lot of like conflicts and a lot of turmoil go down in the crypto space in the past couple of months. And he's been sort of styling himself as his hero coming in, and, you know, saving the failing exchanges. So one of them is Voyager they filed for Chapter 11, back in July, and that was partially caused by the collapse of three arrows capital, the hedge fund, and three arrows basically defaulted on their obligations, $670 million worth of obligations to Voyager and then Voyager went under, because three AC owed them too much money and couldn't pay it back. And so FTX now there was a whole bidding process and FTX ended up just winning that bidding process, the bid $1.4 billion to buy all of voyagers assets, they won the bankruptcy auction. And so 1.3 billion of that is just the fair market value of the assets. And then they paid like this tiny little premium of $111 million in additional consideration, you know, not too much like value above and beyond the literal book value of the assets, which I thought was kind of funny. That
Jacquelyn Melinek 3:22
is a pretty big check their writing, though, regardless, 1.4 billion plus, inside of that the 111 million. I mean, I feel like there's gotta be some value in there for FTX. They're not just drop in cash like that for nothing. Right?
Anita Ramaswamy 3:36
Yeah. I mean, it is a huge check, especially if they're in talks to raise a billion dollars. And this is like a more expensive acquisition than that. And I think part of it is like not just Sam bank Winfrey trying to come in and be the savior, but also perhaps like a customer acquisition thing, because what this means for Voyager customers is that they might actually have a path to repayment. And basically, Voyager hinted that its customers after this deal would probably transition over to being FTX US customers. So for FTX us, this could actually be a good way to capture a lot of people in the crypto market who wanted to participate, lost money and like didn't have a trusted exchange, who are now going to become FTX customers. That's not like 100% set in stone yet, the deal still has to be approved in bankruptcy court, which is set to happen like mid October. But basically this is a little bit of hope for the Voyager customers who lost money.
Lucas Matney 4:22
I'm curious the value of some of these customers where they're like, you've got to be acquiring some of the most jaded customers after they've already like lost like, you know, been through the wringer. Now, they're like, here's a happy home for you to invest more of your money. It'll be different this Yeah,
Anita Ramaswamy 4:34
I probably would leave the crypto game if I lost money on Voyager, to be quite honest with you. One thing I thought was hilarious when I was reading about this, and it's not hilarious when you think about the people who lost money, but it's kind of hilarious that the company thought they could get away with this nice clip. Right, right, right. Like it's just hilarious because like, so they were claiming that their deposits that user funds deposited on their platform were FDIC insured. And they kept claiming this and claiming this In claiming this and it's a blatant lies, the FDIC literally sent them a cease and desist letter and was like, please stop telling people this is true because it's not true. Only the cash that they had in the bank is FDIC insured. It's not like user funds or anything like that. And even then, like if something happened to Voyager, the cash that they have in the bank isn't insured. It's only if the bank itself goes under. So pretty wild stuff that they were just out here claiming, like to customers that their deposits were insured, and then they went and lost all this money.
Jacquelyn Melinek 5:27
It's always something going on. So yeah, I guess on that note, it's been a busy week. Obviously, every week is busy in crypto, but especially for crypto platform Nexo, which is being sued by eight US regulators, representing the states of New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont pretty random bunch if you ask me, but for background Nyxo, launched in 2018. So it's about four years old, and it supports over 50 cryptocurrencies across like 200 jurisdictions, and it has over 5 million users. And it's processed over $80 billion over the past four years, according to its website. And on average, it provides yields to users in the single digit range, but it has offerings up to 36%, which is pretty, pretty steep. That's a big deal. But California and other states like Vermont, Oklahoma, Kentucky and Washington published cease and desist motions, among other charges. And basically some of them are allocating that Nexo has offered and sold on qualified securities through its crypto interest account program for US based users and others are claiming it failed to register with the state securities and commodities brokers and, quote, lied to investors about registration status. So yeah, they're not very happy. A lot of
Anita Ramaswamy 6:42
lies going around these days. A lot of lies. Yeah.
Lucas Matney 6:45
This all seems pretty aboveboard to me. I don't know about you guys. But this seems like crypto operating procedures. 101. No, I mean, it is like funny to see state governments taking such a stand, especially in reference to one another, like the New York ag like they're really going up against a lot of things in the crypto world. And, you know, without a lot of guidance from the federal government, which obviously most of these crypto platforms are like having to keep a super keen eye on because it's just a little bit more game over if the Feds decide something, but then you just have to consider, well, what do all these state legislators think about what we're doing? And you know, obviously, yeah, compliance is probably where most of the startups are spending most of their cash. But yeah,
Jacquelyn Melinek 7:26
yeah, it's definitely going to be expensive bill if the state's win, but New York Attorney General, let's see to James, like you said, New York has been all over crypto. But James said that crypto platforms need to register and operate like other investment platforms. And in response to all this legal action Nyxo gave TechCrunch a beautiful little statement, saying that it's been working with the US federal and state regulators and tried to differentiate itself from other players who have run into financial difficulty. It also told TechCrunch it's committed to finding a path forward for regulated products and services in the US. And for context. Nyxo isn't the first company to get a slap on the wrist.
Anita Ramaswamy 8:02
Yeah, I was gonna say like, who are the other players, right?
Jacquelyn Melinek 8:05
Oh, I'm so glad you asked and Anita. But in the past, we had crypto lending platform block phi, if some of you remember their name, which was ordered to pay $100 million in a settlement with the US sec and 32 states over a similar issue earlier this year in like February, regulators at the time had a similar argument that block five wasn't properly registered to offer its interest accounts, which offered customers up to 9.25% interest rates on deposits, which is a little bit lower than the 36% that we're seeing with Nyxo. Yeah, and also Coinbase canceled its plans to launch a lending program, which would have also offered high yields crypto accounts to users after the SEC basically threatened to treat their products as securities to so those who have it are treading on Rocky waters. What is it choppy waters, and the ones who don't are definitely backing away from the idea?
Lucas Matney 8:58
Yeah, it's funny. Our guests that we had on the podcast, Kevin Walker, you get this funny tweet where it's just like the price to create an ERC 20 token, you know, free, if you know what you're doing, you know, it costs like five or $10 worth of gas to get it up and running. And then I was like, and then probably like 200k and legal fees to ensure that you're alright, so it's like right now, this is kind of the worst case scenario for a lot of crypto startups are just like, yeah, you went fast, you broke things, but all of these agencies in all of these states are going to like, go after you, especially if your company is doing pretty well and has like raised venture funding. So yeah, this is another thing for VCs to, they're gonna have to perform due diligence on, you know, how are you relating to the 50 states that you're doing business in? Yada yada, yada? It's looking a little troubling for Nyxo At the moment, I
Anita Ramaswamy 9:46
will say 32% yield sounds unsustainably high to me, you know, I'm not a financial professional, but
Jacquelyn Melinek 9:54
36% you get an extra 4%
Anita Ramaswamy 9:56
Oh, okay. All right. All right. Just for me Okay, yeah, just
Jacquelyn Melinek 10:00
for you, if you do that specific one, okay, I don't want to get sued for this not financial advice. But you know, even though they're being sued like, they don't seem to be backing down, and this is something that even though they're getting knocked down, they're still like trying to get into the industry. Like, funnily enough after all of this happened on Monday, by Tuesday, Nyxo announced that it was getting a US Bank Charter after buying a stake in a federally regulated US Bank. The stake was an undisclosed amount, but they referred to it as a, quote, industry changing transaction in Hewlett Bancorp, which owns a smaller bank called summit National Bank. And through that smaller entity Nyxo plans to offer a range of crypto products including checkings accounts and crypto back loans and other things. So hopefully, they go down like the registered route for that. And they don't have to face another lawsuit.
Lucas Matney 10:47
It's always the unregistered securities just in the nick of time.
Jacquelyn Melinek 10:51
Yeah, I mean, the co founder of Nexo and a Tony trench have said, and I might be butchering his name, I'm sorry for that. But he said like they have other future plans for US expansion that will be quote, uncovered in the months to come. So seems like they're just getting the ball rolling. And this is another step in the process of expanding crypto products in the US. And maybe they should just be a little more careful in the future,
Lucas Matney 11:16
who's to say, but also, I'm sure block phi really wishes it had that 100 million about now, especially while they're getting some of those deals done being a little more
Jacquelyn Melinek 11:23
careful. Yeah, well,
Anita Ramaswamy 11:24
FTX might buy block phi too. So to bring everything full circle, they have that option as well. Yeah.
Jacquelyn Melinek 11:31
I always gotta bring FTX back to the conversation somehow.
Lucas Matney 11:34
They're bailing everybody out.
Anita Ramaswamy 11:36
Speaking of regulators, yes. slow movements on that front, as they're always slow.
Lucas Matney 11:42
But yeah, especially when you like think something is gonna be like, fast out of the gate. And then you find out like, oh, well, it's gonna be a few years. And they're like, no, no, but that is fast. So last week, I talked a little bit about how the Biden White House was putting together this interagency working group that was deciding, you know, what different departments in the White House would respond to the Federal Reserve creating a digital dollar. So a digital dollar would be a central bank, digital currency, which would be the US dollar on the blockchain wouldn't necessarily be a public blockchain. You know, it could be something that the government puts together, which raises a lot of questions in and of itself. But Biden made this announcement and everyone was like, you know, allegedly doesn't have any inside knowledge of how the Fed is functioning, I suppose. That's like, kind of a key part.
Anita Ramaswamy 12:29
But tone when you said that Lucas cracked me.
Lucas Matney 12:33
Like, like, I'm like, Who's this day? But yeah, I'll keep my conspiracy theorist. But so this week, Fed Chair Powell made some comments, basically being like, Hey, listen, I know you're excited about this. This ain't gonna happen anytime soon. That down. Yeah. He said specifically, they have not decided to proceed. The issuance of a cbdc. Basically noting that like this is going to take a lot of years and a lot of efforts to even get the ball rolling on. So like, hold your horses is specifically quote, We do not see ourselves making that decision for some time.
Anita Ramaswamy 13:07
At least he was honest. Like he was on it. Yeah. Very direct. But also, yeah.
Lucas Matney 13:15
I feel like that, like, in my mind, when the White House interagency working group thing came out, I was like, I was like, Okay, maybe like we're talking like four to five years here in my mind, Powell saying, This basically means like, in 10 years, we'll revisit this, like, it seems very far out. And yeah, I don't know if Powell will still be alive when they digital dollar is introduced, we shall see. But it was an interesting conversation. It was at a conference that was talking about Central Bank's relationships with digital currencies and just digital assets in general. So you know, he gave some further insights on some of the challenges around creating a digital dollar through a central bank, quote, he said, we would be looking to balance privacy protection with identity verification, which has to be done in today's traditional banking system as well. So this is a big complaint that a lot of people have made. They've talked about, you know, if the government's operating on the blockchain, all of a sudden, we have a much more dystopian form of currency to begin with. It's already centrally controlled by central bank, but also where's the anonymity are all transactions easily traceable? You know, what happened to cash like all these things, so kind of worst of all worlds in some way, but potentially better for you know, actors in traditional finance, who are trying to transact more quickly and there's more liquidity all this stuff so a lot of different things being balanced here. But moral of the story none of it's happening soon.
Anita Ramaswamy 14:35
I feel like we need a bingo card you know, like a card for sleepy regulators for FTX bailing someone out we definitely need one for unregistered securities like every time we say this on the podcast, I don't know
Lucas Matney 14:48
limited mentions of Coinbase this week, which I'm disappointed but that would that also be on the biggest part?
Jacquelyn Melinek 14:54
Yeah, they're being quiet this week. They lucked out but going to your point Lucas about all of this being pretty slow. I think it's kind of fair, in a sense. And oftentimes I hear from like crypto founders that they rather do things slowly and get it right, then go really fast and get it wrong. So it feels like, you know, the US government is taking a page out of the industry's book, perhaps, and maybe it'll pay off in the long term. And this isn't like an easy thing to do, either. The digital dollar is fairly new. And if anything, it's completely that's fair to innovation that they have to like, implement in so many sectors that like, my mind doesn't even go to all those corners. So I would rather they do it slow and correctly, then like launch it horribly. And then the whole industry hates it. And then it's this like whole battle. But that's just my take
Lucas Matney 15:41
100% I mean, yeah, I mean, the fact is, there are a lot of huge teams that are filled with people who've been following this stuff from the very beginning. And they're still getting poned, lots of vulnerabilities still being discovered. Thinking about like old Jerome dropping a test net for the digital dollar. I feel like there's some of these things like, I feel like there's just not the right culture around the federal government building, cutting edge tech products. And like, I would feel uncomfortable with them partnering with like a big private company on this also. So like, you know, what has to change from a culture standpoint, and you know, the Fed and like some of these places, in order to actually build something that's really cutting edge and just better than anything the private markets can put together, because they've done it with bombs in the military. So like, how can they bring some of that energy?
Anita Ramaswamy 16:29
How well did just put away his money gone, guys. Okay, that just got shown.
Lucas Matney 16:34
It's not going for anymore. Yeah.
So got a lot of stuff going on. This week, I'm looking at the intersection of virtual reality and crypto, which may sound nauseating to some of the skeptics listening, but there's some cool things happening. So I'm talking to a cool VR startup that has news later this week, which you'll have to read about. But then next week, Mehta has its connect conference. So they'll definitely be showing off a new VR headset. They've talked about it before. But they've also been making a lot of announcements around digital collectibles on Facebook, Instagram horizons platforms. So if you're really passionate about meta getting into crypto, be sure to tune in to techcrunch.com.
Anita Ramaswamy 17:16
Well, in other you know, topics that we get nerdy about, but everyone else might think is boring. I have been looking into derivatives in the crypto world Simon, finance nerd, but no, I mean, look, it's actually spicier than you would think. Because even in the traditional financial system derivatives are the most traded assets. And that's true in crypto as well. So even though it's a pretty opaque and complex world, the markets honestly move because of derivatives. And so I really want to make sense of this space and understand like, what are the different financial products that are out there, I've been talking to some different crypto derivatives exchanges, to just sort of wrap my head around like where the space is today and how it actually matters more broadly to the crypto market and why it causes the markets to move the way they do.
Jacquelyn Melinek 17:58
Nice and for me conferences and it's still going strong. I'm working on a story from chain link smart con conference this week, surrounding tokenization and decentralized finance. A few people on a panel there discuss how bridging traditional finance and defy together through cross chain operations can be huge for moving both industries forward together. We'll be back every week with the top news on the crypto ecosystem. Catch us on Tuesdays for interviews with experts in the web three space. You could keep up with us on Spotify, Apple Music or your favorite pod platform and subscribe to our companion newsletter also called chain reaction. Links to the newsletter and the stories we talked about can be found in our show notes. And be sure to follow us at chain underscore reaction on Twitter
Anita Ramaswamy 18:43
chain reaction is hosted by myself Anita Ramaswamy along with my co hosts Lucas Matney and Jackie melanic. We are produced by Yashad Kulkarni on our associate producer as Maggie Stemettes with editing by Cal Keller Bryce Durbin is our Illustrator Alyssa stringer at leats audience development and Henry pika that manages TechCrunch his audio products. Thanks for listening and see you next week.