More money, more problems for crypto
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Welcome back to Chain Reaction.
Do you believe in second chances? Well, FTX’s new CEO John J. Ray III hopes so. The disgraced crypto exchange’s new chief is open to the idea of restarting operations and possibly reviving the bankrupt company, according to a new report by WSJ. Time will tell if that happens and works out for both FTX and the company’s customers and creditors.
In other news, if you hadn’t heard of a little eight-letter crypto exchange called Bitzlato before Wednesday, you’re not alone. But apparently the U.S. Department of Justice knew what it was, and followed it so closely that they uncovered enough information to arrest the founder, Anatoly Legkodymov, for allegedly processing over $700 million of illicit funds.
While this arrest brought forth a number of jokes and confusion from crypto community members, who had no idea what Bitzlato was before the announcement, it also brought on a bit of annoyance that the DOJ isn’t taking action toward bigger players in the space.
Events like FTX’s bankruptcy shook the crypto industry, but longtime crypto players didn’t seem to know what Bitzlato was before the DOJ’s announcement. According to data of known wallets from Arkham, a crypto intelligence tool, wallets associated with Bitzlato contain just over $11,000; at its peak, they contained over $6 million, making Bitzlato a very small player in the industry.
All in all, this arrest points to the DOJ — and the U.S. government in general — cracking down on the crypto space. Like the rapper Biggie Smalls once said, “It’s like the more money we come across, the more problems we see.”
More details below.
This week in web3
Solana co-founder sees potential for devs to lead its network in 2023 (TC+)
As the crypto developer ecosystem expands, major ecosystems outside of the top two cryptocurrencies — Bitcoin and Ethereum — are growing, according to a new report. Solana saw the highest number of new developers contributing to the ecosystem, with its developer count rising by 83%, the fastest of any major blockchain. “2023 might just be the year when other devs already building on Solana collectively lead the direction of the network,” Raj Gokal, co-founder of Solana, said to TechCrunch.
DOJ charges founder of crypto exchange Bitzlato for processing $700M of illegal funds
As mentioned above, little-known crypto exchange Bitzlato is in hot water. According to the DOJ, Bitzlato allowed users to trade cryptocurrencies without verifying their identity. The Hong Kong-registered exchange advertised itself to customers by saying that “neither selfies nor passports [are] required.” The government said that this lack of know-your-customer procedures turned Bitzlato into a hotbed for criminal activity.
Ethereum’s shift to proof-of-stake draws increasing institutional interest (TC+)
Ethereum’s shift from proof-of-work (PoW) to proof-of-stake (PoS) in September 2022 increased interest in staking across a number of parties — including institutions. The success of the Merge propelled Ethereum from “a smart contract platform lagging behind” into “something that was doing things right,” Diogo Mónica, co-founder and president of Anchorage Digital, a crypto bank last valued at over $3 billion, said to TechCrunch. “Interest from investors grew and the appetite changed dramatically.”
Crypto.com cuts 20% jobs amid ‘significant damage’ to industry from FTX
Crypto exchange Crypto.com is cutting its global workforce by 20%, it said on Friday, as it navigates ongoing economic headwinds and “unforeseeable” industry events. This is the second major layoff at the Singapore-headquartered Crypto.com, which cut 250 jobs in mid-last year. The company did not say which roles were being eliminated in the new round of layoffs but blamed the collapse of FTX, whose misappropriation of customers’ funds and bankruptcy “significantly damaged trust in the industry.”
Crypto in for a ‘choppy year’ of slow capital deployment, investors say (TC+)
While some crypto-focused venture capitalists are bullish for 2023, others see it as a hazardous time. Many investors are trying to put last year’s chaotic market behind them and look forward to the future in a still investor-centric environment. But the competition in the market will heat up as investors write fewer checks and become more selective.
The latest pod
Last week, Chain Reaction launched Season 2 with an episode with Ryan Wyatt, president of Polygon Labs, one of the biggest market shakers and layer-2 blockchains in the crypto space that’s building on top of the Ethereum ecosystem.
Next week, we’ll be releasing our second episode with Mo Shaikh, co-founder and CEO of Aptos, a new-ish layer-1 blockchain that raised a total of $350 million in funding in 2022.
Subscribe to Chain Reaction on Apple Podcasts, Spotify or your favorite pod platform to keep up with the latest episodes, and please leave us a review if you like what you hear!
Follow the money
- ZK proof-focused startup Ulvetanna raises $15 million in a seed round
- Obol Labs raises $12.5 million in a Series A round
- The =nil; Foundation raises $22 million to build out a proof-based marketplace
- Metahood raises $3 million to build a metaverse-based real estate portal
- Sleepagotchi raises $3.5 million to gamify and reward people for sleeping
This list was compiled with information from Messari as well as TechCrunch’s own reporting.