Posted In:

Crypto, Regulation


#451
A Storm Is Brewing

Published:

Aug 20, 2022


Author:

Roxy Horrie

Posted In:

Crypto, Regulation

Published:

Aug 20, 2022


Author:

Roxy Horrie


Share:

In an unprecedented move, the Treasury Department’s Office of Foreign Assets Control (OFAC) recently added Tornado Cash (TC), an open source cryptocurrency mixing tool deployed onto blockchain networks such as Ethereum, to the Specially Designated Nationals And Blocked Persons (SDN) List.

This was the first time in our nation's history that interacting with a piece of software (in this case a smart contract) would be a violation of OFAC sanctions law.

The fallout from the new law started with the arrest of one of the contributing software developers of Tornado Cash, an open source tool not controlled by any one organization or entity. Centralized exchanges, such as Circle, have begun blocking TC funds from being deposited. Even Ethereum miners, who are the validators of transactions on the blockchain, are not confirming transactions originating from Tornado Cash.

The ensuing pushback from the crypto community was immediate --- and in true Web3 fashion, amusingly chaotic. Doxed celebrity, government, and custodial accounts were sent mixed ETH using Tornado Cash en masse, immediately putting into question the enforceability of this sanction. Unlike with other financial rails, one cannot stop themselves from receiving cryptocurrency from another address, ultimately putting everyone at risk of violating these laws.

How much this will truly change how we use web3 is still difficult to guess, but the lines in the sand are already being drawn. Vitalik Buterin has come out to say that once Proof of Stake goes live, if any validators filter sanctioned addresses, they will be slashed, and even Brian Armstrong, the CEO of Coinbase, tweeted that if they are forced to block transactions, they will shut down their staking service completely. It will likely be some time before we get more clarity – but suffice to say a storm is brewing, and who knows who will get caught up in it next….

A Storm Is Brewing

Portfolio News


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Inc. Magazine names Vestwell one of America’s fastest-growing private companies - Congratulations to portfolio company Vestwell for being ranked number 435 on Inc. Magazine's annual Inc. 5000 list, the most prestigious ranking of the fastest-growing private companies in America. The list represents a one-of-a-kind look at the most successful companies within the economy’s most dynamic segment—its independent businesses. To meet industry demand, Vestwell’s business has skyrocketed by over 2,000 percent over the past three years, with well over three times client growth alone in 2021. Read more

Next billion dollar startups 2022 - Congratulations to portfolio company Ocrolus, which was recently named by Forbes as one of the country's 25 venture-backed startups most likely to become a unicorn. Read more

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A Storm Is Brewing


Tornado Cash crackdown shows limits of regulating cryptocurrency services - The U.S. sanctioning of prominent cryptocurrency platform Tornado Cash exposed technical gaps in the government’s ability to prevent criminals, national adversaries and extremist groups from using the services to launder money and finance their operations, analysts said. Among the central challenges: Cryptocurrency platforms are increasingly run by computer code distributed across computers around the world, rather than by individuals facilitating transactions. Read more

Tornado Cash user 'dusts' hundreds of public wallets—including celebs Jimmy Fallon, Steve Aoki and Logan Paul - An anonymous troll is sending celebrities Ethereum from a Tornado Cash wallet—presumably as a way to demonstrate how difficult it will be for the U.S. government to enforce its ban on the mixing service. Last week, the U.S. Treasury Department sanctioned Tornado Cash, an Ethereum coin mixing tool. Tornado Cash previously pooled together transactions in order to obscure their origins and make it much more difficult to work out where digital cash was being sent from. Read more

Industry News


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The reinvention of Goldman Sachs: what has David Solomon achieved? - After taking over as CEO of the bank, Solomon’s mission was to develop new income streams and “drive more durable revenue,” in the process making it easier for outside investors to understand a still enigmatic bank that had been structured as a private partnership until its initial public offering in 1999. Yet despite Solomon ploughing billions of dollars into businesses such as consumer banking, asset management and transaction services, little has changed in Goldman’s revenue mix since the days of his predecessor, Lloyd Blankfein. Trading and investment banking still make up the lion’s share. Read more

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Covalto to become 1st Mexican fintech company on the US stock market - Mexican digital banking platform Covalto is planning to go public via a special purpose acquisition company (SPAC) merger, a move that would make it the first Mexican FinTech to trade on the United States markets. Read more

Crypto is taking a few small banks on a wild ride - Silvergate, Signature and Customers Bancorp gobbled up deposits from crypto companies shunned by bigger banks. Now, they are dealing with the bust. The plunge in crypto prices this year has taken the banks on a wild ride. At Silvergate, deposits swung by $5b in the second quarter, a nearly unheard of move for a bank of its size, before ending basically flat at $13.5b. Read more

Robinhood learns to nab interest income - Though customer trading remains the bulk of Robinhood’s revenue, the upswing in interest rates is helping show some progress on what the firm can do while many small traders are on the sidelines. Interest earned on corporate cash and investments and segregated customer cash and securities went from $2m in the first quarter to $16m. Margin interest revenue also rose sequentially, even as balances dipped lower. Read more

Federal Reserve finalizes guidelines for access to its payment systems - The Fed issued final guidelines this week for its 12 regional branches to use when evaluating applications for so-called master accounts with the central bank. Such accounts allow financial institutions—primarily banks—to move trillions of dollars a day on the Fed’s payment systems. Cryptocurrency companies would be subject to a higher level of review. Read more

University student makes $110m trading meme stock favorite Bed Bath & Beyond - Jake Freeman, an applied mathematics and economics major at the University of Southern California, acquired nearly 5m shares in Bed Bath & Beyond in July, after dismal earnings and the ousting of its chief executive sent its stock price plummeting. Freeman’s initial stake cost about $25m, which he said was mostly raised from friends and family. Read more

Galaxy Digital commits to Nasdaq listing after ending BitGo deal - Galaxy Digital is to press on with a planned listing on Nasdaq even as it called off plans to buy crypto custody platform BitGo for $1.2b. The Canadian-listed group said it was pulling out of the cash and shares deal, alleging BitGo had failed to provide audited financial results for the year to December 2021. BitGo disputed Galaxy’s statement and said it intended to hold Galaxy Digital legally responsible for its “improper decision” to terminate the deal. Read more

Wait, when did everyone start using Apple Pay? - The percentage of iPhones with Apple Pay activated was 10% in 2016 and 20% in 2017. Adoption nearly doubled again in 2018. It hit 50% by 2020. Now it’s around 75% and inching closer to ubiquity. Read more

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Select Financings


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Tessera - New York based NFT trading platform raised $20m in Series A funding led by Paradigm. Read more


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