Posted In:

Crypto, Regulation

A Storm Is Brewing


Aug 20, 2022


Roxy Horrie

Posted In:

Crypto, Regulation


Aug 20, 2022


Roxy Horrie


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

stETH Depegging: A Case study of Cascading Events - Financial markets are a complex set of interlinked systems. Decentralized finance (DeFI) markets are even more complex: they move faster, are global in nature, and are infinitely more composable. These characteristics, unique to DeFi markets, have always been a feature, not a bug. However, complex interlinked systems like DeFi are at greater risk of suffering from cascading events, which are events that take place through a chain reaction and are often uncontrollable and happen in quick succession. In this article, William Starr, FTC investor and Technical Lead, and Liang Wu, Web 3 Research fellow at HBS look at Lido’s stETH token, particularly the stETH depegging that happened in June 2022 as a case study to shed light on what we can learn from cascading events. Read more

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

Lendflow taps Ocrolus for lending decisions - SMB lender Lendflow announced a partnership with data analysis platform Ocrolus to quickly determine borrowers’ viability and provide critical access to capital. Lendflow decided to leverage Ocrolus’ document automation technology to search bank statements, W-2s, and business tax returns to provide critical insight into a business’s revenue and balances. Read more

IMMO hires Solarisbank CTO Hima Mandali - IMMO, the tech-driven residential investment platform revolutionizing renting, selling and investing in single-family rental (SFR) housing, has appointed a Chief Technology Officer following a record-breaking $75m Series B round. Read more

Parker Jay-Pachirat featured on DAO NYC Morning Session - FTC Head of Community Parker Jay-Pachirat talks about building community as a panelist during DAO NYC '22 - check out the full recording by clicking on the link here! Read more

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

Adam Neumann’s new company gets a big check from Andreessen Horowitz - Flow, as Neumann’s new startup is called, will own and operate thousands of apartment rental units, marketing the housing to renters as a “branded product with consistent service and community features.” The firm’s investment in the company is about $350m, valuing the company at more than $1b before it even opens its doors. The investment is the largest individual check Andreessen Horowitz has ever written in a round of funding to a company. Read more

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

Social investment platform eToro to acquire fintech startup Gatsby for $50m - eToro, an Israel-based stock and crypto-trading platform, has agreed to acquire Gatsby, a Robinhood competitor, for $50m in cash and stock. This deal pulls eToro deeper into the U.S. market and allows the company to offer options trading — the largest source of revenue for Robinhood. Read more

LatAm's largest investment bank BTG Pactual launches Bitcoin, crypto exchange - The bank’s new trading platform is called Mynt and will enable users to have direct access to bitcoin, placing it among the first leading financial institutions in Brazil to do so. Additionally, the investment bank with over $200b in assets under custody will provide educational content for all of its users about bitcoin once users have established an account. Read more

Digital bank Revolut gets approval to offer crypto services throughout Europe - The authorization will let the firm, which was valued at $33b in a recent funding round, offer crypto services to its 17m customers in the European Economic Area out of a new crypto-asset hub in Cyprus. Revolut said its choice was down to the sophisticated regulatory regime of the island country which has also attracted the likes of, eToro and BitPanda. Read more

Affirm goes big on BigCommerce - Affirm has struck a partnership with BigCommerce, making it the preferred BNPL option on the e-commerce platform’s merchant checkout pages. The competition between BNPL providers is likely to be won by the company that is on as many checkout pages as possible. Affirm is taking the lead through partnerships with retailers, payment processors and e-commerce platforms. Read more

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

Fidelity and BlackRock cut fintech giant Ant’s valuation lower - Global investors who bought private shares ahead of its suspended initial public offering ,including Boston-based Fidelity Investments, cut its estimate for Ant to $70b at the end of May. That’s down from $78b in June last year, and $235b just before Ant’s IPO was torpedoed by regulators in November 2020. Read more

Lloyds completes UK's first digital promissory note purchase - Promissory notes have been around for millennia, enabling transactions to be completed in lieu of cash by letting sellers get paid based on the creditworthiness of the purchaser. However, under the UK's Bills of Exchange Act, notes need to be a physical entity, meaning it can take a week or more for businesses to be paid. Lloyds says it has managed to address this. Read more

Select Financings

Agora - New York based real estate investment management platform raised $20m in Series A funding led by Insight Partners. Read more

Arc - San Francisco based SaaS startup focused bank raised $20m in Series A funding led by Left Lane. Read more

AtoB - San Francisco based startup with a payment system designed for truckers raised $75m in Series B funding led by Elad Gil and General Catalyst. Read more

BankiFi - UK based provider of embedded banking solutions for small and medium businesses raised $4.8m in new funding led by Praetura Ventures. Read more

Central Payments - San Diego based fintech solutions provider raised $30m in new funding led by Castle Creek Capital. Read more

Closinglock - Austin based real estate transaction platform raised $4m in Seed funding led by LiveOak Venture Partners. Read more

Highbeam - New York based neobank focused on small e-commerce brands raised $7m in Seed funding led by FirstMark and Mayfield. Read more

Jar - India based micro saving app raised $22.6m in Series B funding led by Tiger Global. Read more

Klavi - Brazil based open finance API and data aggregation company raised $15m in Series A funding led by GSR Ventures. Read more

Ledgebrook - Boston based insurtech raised $4.2m in Seed funding led by Brand Foundry Ventures. Read more

Pastel - Nigeria based bookkeeping startup raised $5.5m in Seed funding led by TLcom Capital. Read more

Penfold - UK based digital pensions platform raised $8.5m in Series A funding led by Bridford Group. Read more

Pomelo - San Francisco based international money transfer company raised $20m in Seed funding led by Founders Fund and A* Capital. Read more

QuotaBook - Seoul based equity management platform raised $11m in Series A funding led by Elefund. Read more

Rebill - Argentina based payments and subscription management startup raised $3.6m in Seed funding led by Tiger Global. Read more

Super Payments - UK based fintech company founded by Funding Circle's founder raised £22.5m in new funding led by Accel. Read more

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


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