CoinDesk Crypto

Bitmain’s appeal to recoup $30 million in alleged lost revenues from Poolin has been denied, Digital Currency Group has acquired a retail-focused exchange and Venezuelan officials appear to have blocked access to Coinbase. 

Top shelf

Bitmain bust
A court in China has denied an appeal by bitcoin mining giant Bitmain seeking $30 million in damages from the three co-founders of Poolin, one of the world’s largest cryptocurrency mining pools, CoinDesk’s Wolfie Zhou reports. The mining giant Bitmain claims Poolin’s founding executive broke non-compete agreements in starting its BTC mining operations, leading to millions in lost revenue. While the Beijing No. 1 Intermediate People’s Court found Bitmain failed to provide sufficient evidence that its business losses equaled more than fines already imposed, it did agree to increase fines for Poolin’s co-founders. Bitmain originally sought $4.3 million in restitution when filing the suit in April 2019. Meanwhile, rival mining firm Canaan said it will repurchase up to $10 million in stock, followed by a prolonged period of underperformance.

Acquisition
Blockchain investment firm Digital Currency Group (DCG) has acquired Luno, a retail-focused cryptocurrency exchange with over 5 million customers spanning over 40 countries. Luno will continue to operate as an independent, wholly owned subsidiary of DCG, the companies said. The financial terms of the acquisition were not disclosed in an announcement Wednesday, CoinDesk’s Ian Allison reports. The deal marks another shift in strategy for DCG (which also wholly owns CoinDesk) as it makes a full acquisition of a solidly retail-focused business. “We have invested in many retail businesses all over the world – including nearly two dozen exchanges,” said Mark Murphy, DCG’s chief operating officer. “But this is the first subsidiary that is a wallet and an exchange, which of course have large numbers of retail investors.” 

Related: Blockchain Bites: Is DeFi an Inside Deal?

Exit scam?
Two blockchain security firms have warned the creators of a DeFi contract on the EOS network – Emerald Mine (EMD) – may have stolen investors’ funds in an exit scam, CoinDesk’s Wolfie Zhou reports. China-based auditing firm SlowMist and security startup PeckShield announced the liquidity mining project has begun moving users’ tokens totaling $2.5 million worth of USDT, EOS and other cryptos that were supposedly locked in smart contract to an address labeled “sji111111111” and exchange platforms. The protocol’s contract lacked a multi-signature (multisig) feature. One exchange, Changenow, said it halted the sale of EOS it believes came from the alleged scam, and urged victims to contact their local police for assistance.

Exchange denied
Venezuelan officials have blocked access to Coinbase and fiat remittance platform MercaDolar, according to digital rights advocacy group Venezuela Inteligente. The advocacy group said the move, discovered late Tuesday evening, has no clear outcome or objective but that internet service providers (ISPs) have been part of the move to block access, CoinDesk’s Sebastian Sinclair reports. “Crypto exchanges have been blocked in the past,” said director of Venezuela Inteligente Andres E. Azpurua in reference to ISPs blocking via a DNS block. “Until recently all of them were lifted.”

Chain resilience?
Despite three “51% attacks” in a month, Ethereum Classic’s price has demonstrated strong resilience. Though down a bit for the past month, its persistence may indicate that security is not a top priority for investors rushing to join a bull run in the crypto market, CoinDesk’s Muyao Shen reports. ETC is no stranger to attacks, having suffered one in early  2019,  a sign traders could be less concerned about long-lasting security vulnerabilities than a quick profit. Or, as a forked crypto where a large number of addresses have been inactive, some ETC holders may not see the value of selling or even claiming their ETC. James Wo, founder of ETC Labs, told CoinDesk his team has expanded the network’s core development team and partnered with Chainlink, Swarm and Bloq over the past year to improve security. 

Quick bites

• Most New Customers at Japanese Exchange BitFlyer Are in Their 20s (Nikhilesh De/CoinDesk)
• What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About (Brady Dale/CoinDesk)
• Bitcoin Miners Are Concerned by Bitmain’s New Rigs (Shaurya Malwa/Decrypt)
• Major food delivery service Just Eat will now allow France customers to pay in BTC (Saniya More/The Block)
• The Largest of Whales (Mati Greenspan/Quantum Economics)

At stake

Crypto gets active
Is activist investing becoming normalized in crypto? 

Related: First Mover: SushiSwap’s Billion-Dollar ‘Rug Pull’ Is Thriller to Crypto Geeks

In the latest push and pull between token holders, investors and projects, hedge fund manager Arca is attempting to overhaul one of the earliest DeFi protocols Gnosis.

After backing the prediction market’s 2017 $12.5 million ICO, Arca is claiming the Gnosis platform has failed to live up to its promises and deviated from its original mission. The Block originally reported this story.

Now Arca is asking Gnosis to return value to investors and token holders. Over the summer, the hedge fund discreetly asked Gnosis to make a tender offer for all circulating GNO tokens, giving investors the opportunity to cash out and offer a stock split opportunity for those who stick around.  

In a blog post published Tuesday, Arca Chief Investment Officer Jeff Dorman reiterated Arca’s prior suggestions that the project institute revenue-generating and cost-cutting initiatives. The project, he said, should aim to become “free cash flow positive,” rather than reliant on treasury assets contributed by GNO token holders.

The quasi-buyback program would provide an out for investors while also leaving the project enough runway. (Gnosis has $55 million worth of ETH and $10 million of cash as reserves.) 

Dorman wrote that Arca often works with management teams throughout the lifecycle of an investment to achieve the goals of the community, which he described as a typically productive and mutually beneficial process. This was not the case with Gnosis, however.

Gnosis, which instituted one of the first decentralized exchanges, is one among many prediction markets struggling to gain a foothold.

Stepping back, the situation points to a rare example of activist investing strategies in crypto. A practice common to traditional markets, activist investing sees large investors buy large shares in companies and acquire board seats to suggest operational changes and agitate for management, in an effort to increase value for shareholders.

Activist investing, popularized by the “corporate raiders” of the 1980s, ballooned from a $12 billion industry in 2003 to having $112 billion assets under management by 2014.

DigixDAO, an early initial coin offering (ICO) which faced a situation where its treasury was more than its market cap, faced similar activist investor behavior when it offered a question to the community – dissolve the treasury or continue making grants?

Market intel

Correlations
Bitcoin is now more closely tied to safe haven gold than ever, possibly bringing the cryptocurrency greater resilience to risk aversion in the traditional markets, CoinDesk’s Omkar Godbole reports. The 60-day correlation between the two assets is hovering at record highs, beginning this correlation in July, when the U.S. dollar began a sell-off. While others refute the “store of value” narrative due to bitcoin’s closer correlation with traditional risky assets, the cryptocurrency has defended its $10,000 support for the fifth straight day on Monday, despite losses on Wall Street. 

CoinDesk 20
Orchid (OXT), issued by Orchid Labs Inc., developer of virtual private network (VPN) software designed to be decentralized and open source, has replaced the basic attention token (BAT) issued by Brave Software Inc., developer of the Brave browser, on the CoinDesk 20 list. Orchid’s price pumped last month, benefiting from attention from David Portnoy, a publisher and media personality, though it started its ascent prior reflecting anticipation of Orchid’s mobile and desktop apps, released in July. The CoinDesk 20 is a list of the digital assets that matter most to the market using a detailed methodology.

Op-ed

Banks Are Toast but Crypto Has Lost Its Soul
CoinDesk columnist and author of “The Case for People’s Quantitative Easing” Frances Coppola thinks banks are too lugubrious to survive, but crypto has also lost its way. “But in becoming a high-risk, high-yield playground for dollar investors, the cryptocurrency world sold its soul. The early adopters of Bitcoin believed it would replace the financial system that had crashed and burned so badly,” she writes.

Bitcoin, Mescaline and Parallel Worlds
Leah Callon-Butler, a CoinDesk columnist and director of Emfarsis, explores the phenomenon of how people get curious, then interested then obsessed with the world of cryptocurrencies – comparing it to the “down the rabbit hole” experiences of psychedelics or philosophy. “The concept of money might be the greatest illusory trick of all time. Over history, all sorts of things from paper notes to gold bars, seashells to giant rocks, and indeed, lines of code, have superseded relative obscurity to be worshipped as money. A mythical system of value is only “real” because we believe it is,” she writes.

Podcast corner

Why Bitcoin Investors Aren’t Worried About This Price Pullback
Critiques of correlation between bitcoin and equities miss the fact that bitcoin adoption within traditional markets has been driven by a fiat collapse concern, Nathaniel Whittemore writes to introduce the latest episode of The Breakdown. 

Who won #CryptoTwitter? Related Stories

• Crypto Long & Short: What Investors Get Wrong About Volatility (and Not Just for Crypto)
• Blockchain Bites: Tether’s Dispute, Buterin’s Fix and 3 Reasons for Bitcoin’s Sell-Off

Cryptocurrency exchange Kraken will operate in Japan for the first time in two years.

The company said Tuesday its Japanese subsidiary, Payward Asia Ltd., completed the regulatory registration process and has been granted a permit to operate as a crypto asset exchange business in the country. 

• According to the announcement posted on Kraken’s website, the firm plans to start offering its services in the middle of September, with more details to come.
  
• Kraken exited the Japanese market in April 2018 when regulators stepped up oversight of the cryptocurrency sector after a Tokyo-based exchange, Coincheck, lost more than $530 million worth of assets after a hack.
  
• According to Kraken’s announcement, Payward Asia’s new platform will initially only handle trades in five coins: bitcoin, ethereum, XRP, bitcoin cash and litecoin. 
  
• Customers who used Kraken’s services through Payward Japan before April 2018 will need to open a new account under the new procedure, Kraken said, because the firm does not plan to offer an account-transfer option. 
  

Related Stories

• Digital Rights Advocacy Group Calls On Coinbase for Greater Transparency
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• Japanese Financial Giant SBI Holdings Launches Short-Term Crypto Derivatives
• LINE Launches Digital Asset Wallet and Blockchain Development Platform

Uniswap fork SushiSwap has begun migrating $830 million of crypto assets to a new community-owned automated market maker (AMM). The process began at approximately 14:15 UTC, when testing the migration first began.

The event is perhaps the largest test to date of a growing mood in DeFi: that all major projects should be community-owned. As of now, Uniswap is a standout market leader without a governance token, the type of coin that makes decentralized decision-making possible.

Stepping back, some liquidity providers to Uniswap’s AMM system have given control of their crypto to the rival AMM for the purpose of migrating assets to SushiSwap (and earning SUSHI tokens for doing so). The first pool to make the trek will be CRV/ETH (CRV is the governance token for stablecoin exchange Curve).

Related: Huobi Launches Crypto Saving Products to Compete With DeFi Yield Farming

The move is earlier than expected because the originally stated migration for SushiSwap was supposed to be this Friday. Last week, however, the community voted to move up the migration by five days, to Sunday, Sept. 6.

But then the anonymous leader of SushiSwap exited with his ETH stake, leading to drama in the community. The newly enriched SushiSwap creator turned over control of the project to Sam Bankman-Fried, CEO of both the synthetic exchange FTX and quant trading firm Alameda Research. 

Bankman-Fried then cancelled the migration, moving it to today.

Read more: Fishy Business: What Happened to $1.2B DeFi Protocol SushiSwap Over the Weekend

Related: Security Firms Warn of Potential DeFi Exit Scam After $2.5M in ‘Locked’ Cryptos Moved

Bankman-Fried tweeted out some migration details on Wednesday morning. The timeline is not completely set in stone because the project’s new leadership plans to run tests as they go.

The decision to run tests appears to be in response to comments in the SushiSwap message board on Tuesday urging caution.

According to Bankman-Fried, there have been testnet runs and there will be final tests after the smart contract unlocks the migration process. Then the pools will migrate one by one. 

While it’s not clear just how long it will take, Bankman-Fried told CoinDesk on Twitter that he and his colleagues will likely move each pool fairly close together.

The SUSHI token is trading today at roughly $3.00, well off from its all-time high of $11.93 on Sept. 1, according to CoinMarketCap.

AMM wars

To be clear, SushiSwap is taking liquidity currently held by Uniswap. This is possible because liquidity on Uniswap is redeemed using liquidity provider (LP) tokens that account for the depositors’ share of the pool (the value of the share grows as people use it and pay 0.3% fees on each trade).

Users have turned their LP tokens over to SushiSwap. The smart contract will then redeem all its pools on Uniswap, migrate the actual underlying crypto assets to SushiSwap and then replace users Uniswap LP tokens with SushiSwap LP tokens. 

According to DeFi Pulse, there is currently $1.47 billion worth of crypto assets staked to Uniswap, but a community-built data portal to SushiSwap claims that 55% of those assets are staked to switch over to SushiSwap today.

Further, Bankman-Fried has promised to distribute 2 million SUSHI tokens to SushiSwap backers who stick around through the migration. 

There are 18 pools of token pairs on SushiSwap, though Bankman-Fried tweeted that the BASED/sUSD pool would not be migrating. By and large, pools are an ERC-20 token paired with ETH, making it easy to swap between any two tokens (with ETH as the bridge). 

Pools include SUSHI/ETH, ETH/USDT, REN/ETH, YFI/ETH, LEND/ETH and many others. 

DeFi context

Both SushiSwap and Uniswap are AMMs, or robots on Ethereum who always have a “buy” price and a “sell” price for any two Ethereum-based tokens for which they have liquidity.

For Uniswap, that’s just about all of them; for SushiSwap, it’s a limited set, but liquidity providers accrue a stake in the platform the longer they provide funds.

SushiSwap is a part of a new crop of decentralized finance (DeFi) projects that belong in the world of Weird DeFi, new forms of companies that are meme-driven and whose goals are an emergent property of their community. 

Read more: Yearn, YAM and the Rise of Crypto’s ‘Weird DeFi’ Moment

Inspired by the distribution of Yearn.Finance’s YFI governance token, Weird DeFi favors projects that do so-called “fair distributions.” Fair distribution means there are no tokens set aside for the project’s founders and investors.

The SushiSwap community made an exception for the creators of SushiSwap, however. The pseudonymous creators who forked Uniswap’s open-source code made off with an estimated $13 million in ETH after unloading their SUSHI this weekend.

The founders were good enough to turn over control over what they built to others, however.

Election 2020

An election is taking place for the nine members of a multisig wallet that will be able to make changes to SushiSwap’s code. Community member Zippo made a dashboard to follow the vote. Nine people will be chosen and any six can make changes.

In the leadup to Wednesday’s migration, there had been an active if modest campaign within the Sushi Discord server. Candidates for the multisig discussed their qualifications and affirmed their devotion to abiding by the community’s will, reflecting a growing interest in the emerging narrative around “protocol politicians.”

The vote closed just before 14:10 UTC on Wednesday as the migration testing started. 

Top vote-getters included Bankman-Fried, Compound founder Robert Leshner, 0xMaki (a SushiSwap co-founder who was not allocated tokens) and The Block’s Larry Cermak. 

Cermak did not reply to a request for comment from CoinDesk last night about whether he would accept the position, which could pose conflict-of-interest issues relating to his work as the news publication’s director of research. He previously told CoinDesk he had no direct involvement in SushiSwap.

According to the nomination channel in the SushiSwap Discord server, it appears as though anyone could be nominated, even without the nominee’s approval.

While SUSHI is ostensibly the governance token, votes on the multisig – which amounts to a project’s board of directors – were only open to those who had staked their SUSHI in the SUSHI/ETH pool.

Who wins?

Uniswap had less than $300 million in liquidity before SushiSwap’s liquidity mining scheme gave Ethereum users a reason to dump well over $1 billion more of crypto assets into the market leading AMM. 

Uniswap worked well at $300 million assets and could easily come out the other side of this process with roughly the same amount or even more. 

The open question following the migration will be whether or not Uniswap has really lost anything if the migration ends with roughly the same amount of liquidity, or if the greater depth on SushiSwap actually makes it more attractive for users who want to make a swap.

Related Stories

• DeFi Protocol Linear Finance Raises $1.8M in Seed Round
• What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About

A California judge has thrown out a $200 million damages claim against mobile operator AT&T from crypto investor Michael Terpin over a SIM-swap hack, but has allowed the rest of the case to proceed.

• Judge Otis Wright II of California’s central district court granted AT&T’s motion, originally filed in April, to dismiss claims of concealment and misrepresentation, as well as requests for punitive damages.
• Terpin has said the hack robbed him of cryptocurrency holdings worth around $24 million at the time and argued the telco giant is in part responsible.
• In a filing Tuesday, AT&T’s lawyers said Terpin’s claim of deceit by concealment falls down as the mobile operator’s privacy policy doesn’t guarantee total protection from third-party breaches, so no attempt was therefore made to conceal or only partially represent the security protocol’s limits.
• Terpin alleges an AT&T employee only assured him two-factor authentication (2FA) would keep his information private so the company could keep him as a customer, and that the firm had no actual intention of ensuring his information was secured.
• But, agreeing with the defendant’s argument that “overly optimistic” promises are markedly different from false promises, the judge ruled that Terpin didn’t show how AT&T intentionally misrepresented him over the protection offered by 2FA.
• The court also threw out allegations that AT&T employees knew about, but disregarded, the security inadequacies associated with the 2FA protocol.
• As Terpin’s $200 million damages suit rested on the allegations AT&T committed fraud and that employees displayed negligent conduct, the judge has dismissed the existing claim.
• He did, though, give Terpin leave to file for punitive damages on separate claims.
• Terpin first sued AT&T in August 2018, claiming the company failed to adequately protect his cellphone from possible hack as it had allegedly promised.
• The court previously denied AT&T’s motion to dismiss the entire case, ruling Terpin had showed how hackers may have used his phone’s 2FA to access his crypto wallets, something he had relied on his phone provider to help protect.
• The case continues on the remaining allegations that AT&T breached its contract and that employees made an unauthorized disclosure of private information to hackers.
• Terpin is still suing AT&T for $23.8 million in compensation, the dollar-value of the cryptocurrencies stolen in 2018.

See also: Veritaseum Accuses T-Mobile of Gross Negligence Over $8.6M SIM-Swap Hack

Read the dismissal order below:

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Huobi, the third-largest crypto exchange by derivatives trading volume, is now giving users a way to earn relatively attractive interest rates on a bitcoin or USDT savings account. The product, launched Sept. 7, is the exchange’s latest bid to beat its competitors as it boosts its assets under management. 

Huobi’s addition targets retail traders less interested or involved in day-to-day trading activities but still willing to receive a certain amount of returns from their digital assets, said Ciara Sun, the vice president of Huobi Global Markets, during an exclusive interview with CoinDesk on Sept. 8.

“Huobi has millions of users but a large percentage of that is not frequent traders,” Sun said. “By offering this saving product in addition to trading, (users) can get sable and flexible income as an alternative use of their crypto assets.”

Related: SushiSwap Will Withdraw Up to $830M From Uniswap Today: Why It Matters for DeFi

The service does more for Huobi than meet customers’ needs. It also benefits Huobi’s position as one of the leading crypto exchanges in the world, Sun said. Assets under management have always been one of the key on-chain metrics to grade a crypto exchange’s performance, while other metrics such as trading volumes can be easily manipulated or miscalculated, according to Sun.

Huobi’s crypto saving product comes amid a global recession and while the crypto world is fascinated by decentralized finance (DeFI). 

Read more: What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About

Huobi’s crypto saving products provide a more attractive interest rates than any traditional banking services while carrying fewer risks compared with the DeFi products, according to Sun.

Related: Security Firms Warn of Potential DeFi Exit Scam After $2.5M in ‘Locked’ Cryptos Moved

Users of Huobi’s crypto savings products receive an annual yield at 8% and 3.5%, respectively, for their deposited USDT and bitcoin, according to the news release. To lure new users, the exchange is giving a specialized account rate of an annualized return of 88% for the first week. Huobi will also distribute 30,000 USDT as a way to bring in users to the product.

“Choosing those different DeFi products out there is very hard for a new crypto user, so it’s a high entry barrier for those customers,” Sun said. “But as there is this DeFi craze happening in the space and people are looking at it and they may be interested and they want to participate in crypto because they see those high returns.”

The initial phrase of the new crypto saving product sets a limit of deposit of 3,000 tether or the equivalent value in bitcoin and Huobi’s security team has added a security and risk control system to protect the users’ funds, Sun said.

Read more: DeFi’s Good, Bad and Ugly

Despite lucrative returns from yield farming, white-hot DeFi has been criticized for potential security risks as more investors are putting money into unaudited smart contracts controlled by sometimes unknown founders. 

Nonetheless, the Seychelles-based crypto exchange did not hide its eagerness to participate in the DeFi world. Just on Aug. 23, Huobi launched a new token listing platform Huobi Inno Hub for DeFi tokens trading.

OKEx, one of Huobi’s main competitors, meanwhile, has already listed 21 DeFi Tokens in just 30 days, according to the Malta-based crypto exchange’s news release on Sept. 4.

Related Stories

• DeFi Protocol Linear Finance Raises $1.8M in Seed Round
• What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About

Payments giant Mastercard has released a platform that allows central banks to test how proposed central bank digital currencies (CBDCs) would work in real life.

• Mastercard announced Wednesday it had launched a virtual testing environment that can simulate issuance, distribution and exchange of CBDCs between banks and financial service providers, as well as end-consumers purchasing everyday goods and services.
• In a statement, Mastercard said the new protocol would help financial institutions understand the feasibility of CBDCs and allow them to explore new use cases, including issuance at a local or regional level.
• They can further evaluate compatibilities with existing payment rails such as payment cards.
• A facility to analyze and compare different proposed tech stacks for CBDCs is also included.
• Talking to Forbes, Raj Dhamodharan, Mastercard’s executive VP, said his firm is already working with some central banks and that other entities, such as banks or tech firms, are being invited to use the platform.
• Mastercard was one of the founding members of Facebook’s Libra Association – an initiative now considered a catalyst for getting central banks to look at digital currencies seriously.
• Along with rival Visa, Mastercard left Libra in October after mounting concerns over compliance and the business model.
• Visa, which already offers payment cards for Coinbase, said in July it would do more to support digital currencies and blockchains popular with their clients.

See also: South Korea’s Central Bank Starts Technical Phase for Digital Currency Ahead of 2021 Pilot

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• DeFi Protocol Linear Finance Raises $1.8M in Seed Round
• Venezuela Blocks Access to Coinbase and Remittance Service MercaDolar
• Most New Customers at Japanese Exchange BitFlyer Are in Their 20s

Digital collectibles marketplace Blockparty said Wednesday it is releasing digital music collectibles in partnership with DJ Justin Blau (3LAU). 

• According to a press statement emailed to CoinDesk, the “audio-reactive” collectibles combine 3LAU’s music with moving graphics from artist Mike Parsella.
• Blockparty said 3LAU has also come on board as the firm’s director of music and will help oversee development of such digital collectibles. 
• “I am advising Blockparty on how we bring other musicians on board,” said 3LAU, who was involved in the first music concert to feature ticketing powered by the Ethereum blockchain back in 2018.
• Along with ticketing for events via Ethereum, Blockparty recently launched its own non-fungible token (NFT) marketplace.
• “The business was very difficult to scale and so we decided to spread our approach to all NFTs instead of specifically ticketing,” said Vladislav Ginzburg, CEO of Blockparty.
• Larger ticketing companies with exclusive access to events also presented a hurdle for Blockparty.
• The firm said that while live concerts are currently on hiatus during the coronavirus pandemic, once they do return, users who own 3LAU’s collectibles will enjoy additional perks such as giveaways and access at events. 

Also read: Dapper Labs Releases CryptoKitties Based on Rock Band Muse

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You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team and edited by Bradley Keoun, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to.

Price Point

Bitcoin was up in crypto markets early Wednesday, bouncing after a 2.4% drop that appeared synced with a sell-off in U.S. tech stocks. Traditional markets also appeared to be pausing the recent retreat from risky assets. 

The move down in digital assets has provided a “healthy reset after a fast and furious summer rally,” the cryptocurrency-focused investment firm Arca said Wednesday in a blog post. Bitcoin prices are still up about 42% year to date.

Related: ‘High’ Severity Bug in Bitcoin Software Revealed 2 Years After Fix

“This market still isn’t mature enough to absorb an increase of selling pressure from the market’s biggest investors,” Arca Chief Investment Officer Jeff Dorman wrote. 

Market Moves

Bitcoin is suffering its worst two-week stretch since March, down 15% since the end of August, and anxious investors are once again scrambling to identify the 11-year-old cryptocurrency’s closest analog in traditional markets. 

Is it a hedge against currency debasement, similar to gold? A disruptor of banks and the financial industry? A revolutionary innovation that should trade in line with tech stocks like Facebook, Amazon, Apple, Netflix and Google or even Tesla? 

As the Federal Reserve pumped about $3 trillion of freshly created money into the global financial system this year in an effort to calm uneasy markets, the currency-debasement investment thesis garnered the most attention. Bitcoin outperformed the tech-heavy Nasdaq Composite index while trading broadly in line with the high-flying stocks. 

Related: Bitcoin’s Correlation With Gold Hits Record High

But as tech stocks have tumbled over the past week, hit by concerns over frothy valuations and the revelation that the market might be buoyed by the Japanese conglomerate Softbank’s options buying, bitcoin sold off too. 

“If you get a smash in markets then bitcoin’s not going to escape it,” Charlie Morris, chief investment officer of the digital-asset-focused investment firm ByteTree, said in a WhatsApp audio interview. “We’ve seen that time and time again, so why expect that to change?”

Longer term, bitcoin is likely to return to its outperformance, Morris predicts. 

The high-flying tech-stock valuations “make no sense to anyone who’s a rational investor,” said Morris, who spent nearly two decades as a money manager for the giant British bank HSBC. “Bitcoin’s still small and has huge upside from here.”

Crypto investors have ignored three straight 51% attacks on Ethereum Classic

For a blockchain network’s security, a “51% attack” is pretty much as bad as it gets. That’s when a single entity gains control of a majority of the network’s computing power, allowing it to siphon off extra units of the currency in what’s known as a double-spend.

So it would stand to reason that three successful 51% attacks in a month against the Ethereum Classic blockchain might dent investors’ confidence.

But as reported Tuesday by CoinDesk’s Muyao Shen, prices for the project’s native ETC token haven’t really taken a hit – a sign traders could be less concerned about security vulnerabilities than a quick profit in fast-moving cryptocurrency markets.

ETC has fallen about 27% in the past 30 days, not a terrible performance given that bitcoin is off by 15%. 

For large networks like Bitcoin, a 51% attack is prohibitively expensive to do given the enormous amount of computational power — and electricity — required to pull it off. Ethereum Classic is much smaller, making it far more vulnerable.

“Many people are just sort of sitting on it,” Meltem Demirors, chief strategy officer at the digital-asset money manager CoinShares, told CoinDesk in a phone interview. 

Bitcoin Watch

Bitcoin’s 60-day correlation with gold has risen to record highs above 0.5. With fortunes more tied to the yellow metal than ever, the cryptocurrency may now show greater resilience to risk aversion in stock markets. 

• The leading cryptocurrency defended the $10,000 support for the fifth straight day on Tuesday even as Wall Street suffered losses. 
• The persistent defense of key support, coupled with record miner confidence, as suggested by the hashrate and signs of dip demand suggests scope for recovery rally. 
• “The recent drop represents overselling and buyers may soon step back in again,” Simon Peters, a crypto-asset analyst at multi-asset investment platform eToro, said in an email.

– Omkar Godbole

Token Watch

Orchid (OXT): The token, from the decentralized virtual private network developer Orchid Labs, was added as a member of the CoinDesk 20, replacing basic attention token (BAT). 

Bitcoin (BTC): September is historically the cryptocurrency’s worst-performing month, with an average loss of 7%, a new Kraken report shows. 

Yearn.Finance (YFI): “Intuitive interface to all DeFi” aims to be gateway that rookie yield farmers might grok, with deposit tokens that can be traded. 

Ether (ETH): Hashrate approaches all-time-high as DeFi pushes up transaction fee rates, miner profits, Arcane Research says:

What’s Hot

Publicly traded Chinese miner market Canaan approves $10M share buyback as stock price languishes (CoinDesk)

Crypto exchange owner Diginex raises $20M ahead of anticipated Nasdaq listing (CoinDesk) 

Most new customers at Japanese exchange BitFlyer are in their 20s (CoinDesk)

Ukraine, Russia and Venezuela are hotbeds for cryptocurrency adoption, Chainalysis says in report (CoinDesk)

Satoshi’s vision for bitcoin probably didn’t entail greedy traders slinging derivatives to get rich (CoinDesk Opinion)

Why DeFi could foster the killer app of banking (Hacker Noon)
 

Analogs The latest on the economy and traditional finance

U.S. Senate Republican leader says high chamber to vote as soon as this week on coronavirus stimulus plan as Democrats seek $2.2T (CNBC)

The stimulus deadlock will keep USD weak in the medium term: strategist (CNBC)

Germany ends China honeymoon with new Indo-Pacific strategy​​​​​​​ (Nikkei Asian Review)

China, HK stocks drop on Wall St tech woes, rising Sino-U.S. tensions (Reuters)

DoubleLine’s Gundlach predicts junk-bond defaults could double even as Fed props up valuations (Bloomberg)

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Binance has unveiled a new subsidiary that will provide cryptocurrency trading services in Turkey, including an on-ramp for the local lira.

• The exchange giant announced Tuesday that BinanceTR will offer lira trading pairs with bitcoin (BTC), ether (ETH), tether (USDT), XRP and the exchange’s own Binance coin (BNB) and BUSD stablecoin.
• The new subsidiary will be owned by Binance and operated by an independent company BN Teknoloji A.S.
• A spokesperson declined to comment on the nature of the relationship between Binance and BN Teknoloji.
• Trbinance will be able to tap the broader exchange’s liquidity through Binance Cloud.
• Users’ assets will also be covered by the SAFU Fund, Binance’s emergency insurance fund.
• Turkey has one of the highest rates of crypto adoption, with 16% of citizens having either bought or used digital assets in 2019, according to a global survey.
• Binance founder and CEO Changpeng Zhao said in a statement that Turkey is a key market to help the exchange bridge the gap between Asia and Europe.
• Asked if BinanceTR would comply with local exchange rules, a Binance spokesperson said the platform would satisfy the risk and anti-money laundering and know your customer concerns of local regulators and market participants.
• The spokesperson added that BinanceTR would also prepare financial statements according to local law.
• This will be Binance’s sixth local exchange. The spokesperson said a U.K. institutional exchange is still set to launch sometime this year.

See also: Binance Unveils New Product for ‘Yield Farming’ Crypto Assets

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Bitcoin is now more closely tied to safe-haven gold than ever, possibly bringing the cryptocurrency greater resilience to risk aversion in the traditional markets.

• The 60-day correlation between the two assets is hovering at record highs above 0.5, according to Coin Metrics data.
• The positive correlation has strengthened sharply since the beginning of July, as the U.S. dollar started taking a beating against other major currencies.
• The sell-off in the greenback, the global reserve currency, is seen as boding well for scarce assets like bitcoin and gold.

• The strengthening of the positive correlation appears to validate the popular narrative that bitcoin is a store of value and a haven asset. Some investors believe it is sound money, like gold.
• As such, the cryptocurrency’s sensitivity to movements in risk assets, mainly equities, could lessen.
• Bitcoin defended the $10,000 support for the fifth straight day on Monday, despite losses on Wall Street. 
• The repeated defense of the critical support, coupled with several bullish developments in on-chain metrics, suggests scope for a recovery rally.
• Bitcoin’s hash rate or computing power has risen to fresh record highs near 150 exahashes per second, according to Glassnode.
• That suggests miners remain unfazed by bitcoin’s recent decline from $12,400 to $10,000.
• Further, the percentage of bitcoin unmoved in over three years has hit a two-year high of 30.91%, according to data source Glassnode.
• “It suggests an increase in the holding mentality,” Simon Peters, a crypto-asset analyst at multi-asset investment platform eToro, said in an email.
• “The recent drop represents overselling and buyers may soon step back in again,” Peters added.
• The cryptocurrency is trading near $10,200 at time of writing, representing a 0.7% gain on the day.

Also read: Bitcoin Options Suggest Investors Hedging but Still Long-Term Bullish

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Blockchain investment firm Digital Currency Group (DCG) has acquired Luno, a retail-focused cryptocurrency exchange with over 5 million customers spanning over 40 countries. 

Luno will continue to operate as an independent, wholly-owned subsidiary of DCG, the companies said. The financial terms of the acquisition were not disclosed in an announcement Wednesday.

The deal marks another shift in strategy for DCG (which also wholly owns CoinDesk) as it makes a full acquisition of a solidly retail-focused business. 

Related: Binance Launches Fiat-Crypto Exchange for Turkish Market

“We have invested in many retail businesses all over the world – including nearly two dozen exchanges,” said Mark Murphy, DCG’s chief operating officer. “But this is the first subsidiary that is a wallet and an exchange, which of course have large numbers of retail investors.” 

DCG, which recently launched a new crypto mining division called Foundry, has been quite focused on institutional crypto businesses such as Genesis and the brisk cryptocurrency lending market.

Read more: DCG to Invest $100M in Bitcoin Mining Venture

Going forward, Murphy said DCG isn’t actively looking to make more acquisitions at the parent company level. “But Luno intends to expand globally both organically and through acquisitions,” he said. “We view this deal as a potential first step towards a ‘roll up’ strategy under Luno.”

Luno’s reach

Related: Most New Customers at Japanese Exchange BitFlyer Are in Their 20s

Launched in 2013, Luno was initially based in Singapore before moving headquarters to London a couple of years later. The firm has a team of close to 400 staff and is a leading exchange on the African continent, and a major player in South East Asia. 

The exchange, which has raised some $13.8 million in funding to date, first received investment from DCG back in 2014, and its relationship with DCG founder and CEO Barry Silbert dates back even earlier.

“We’ve known DCG for seven years,” said Luno co-founder and CEO Marcus Swanepoel. “I can remember when we were five people in a room, and being on a call with Barry talking about the future of crypto and where the industry is going to go. So for seven years, we’ve been working together and having those conversations.”

Swanepoel said Luno is already in a strong financial position, and that there have been “multiple people over the years trying to acquire the company.”

See also: This Bitcoin Documentary From Africa Is Streaming on Amazon Prime

DCG’s conglomerate status in the crypto industry was an attractive feature for Luno, he added, as well as how a retail business can play a part within that.

“I think after the announcement of Foundry two weeks ago, DCG is now touching every single type of thing, every single type of market,” Swanepoel said. “But two missing pieces were having a strong presence in frontier markets or emerging markets, and they didn’t have a retail business. So we kind of really filled the puzzle.”

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Two blockchain security firms have warned that the creators of a DeFi contract on the EOS network may have fled in what appears to be an exit scam.

China-based auditing firm SlowMist said on Wednesday that a liquidity mining DeFi project on EOS called Emerald Mine (EMD) has moved users’ tokens that were supposedly locked in smart contract to an account labeled “sji111111111” since early Wednesday China time.

SlowMist warned users not to send additional funds to the smart contract for liquidity mining, as part of funds have already been transferred to exchange platforms.

Related: Alameda Research Co-Leads $1.8M Seed Round for DeFi Protocol Linear Finance

PeckShield, another China-based blockchain security startup, published a similar notice on WeChat soon after, saying the funds on the move include users’ locked-up assets of some 787,000 USDT, 490,000 EOS and others – worth nearly $2.5 million in total.

Both firms said users participating in DeFi liquidity mining should be aware of EOS contracts that have no multi signature (multisig) feature, meaning whoever is behind the contract can move assets even if they are supposed to be locked up.

The EMD project’s website has since become inaccessible.

PeckShield said USDT tokens that are part of the apparently absconded funds are being sold via decentralized exchanges like DeFibox.

Related: What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About

It’s not yet clear who’s behind the project, but the event has sparked users to send small transactions to the sji111111111 account on Wednesday with angry messages demanding that the alleged scammer return their funds.

So-called liquidity mining has drawn wide interest over recent weeks, with some of the Ethereum-based tokens in such projects seeing heavy speculation on both decentralized and centralized exchanges.

Read more: Fishy Business: What Happened to $1.2B DeFi Protocol SushiSwap Over the Weekend

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Decentralized finance (DeFi) protocol Linear Finance announced the completion of a $1.8 million seed round Wednesday

• NGC Ventures, Hashed, CMS Holdings, Genesis Block and Kenetic Capital led the investment, while Alameda Research, Evernew Capital, Soul Capital, Moonrock Capital, Black Edge Capital and PANONY also participated, according to a press release.
• Alongside their investments, NGC founding partner Tony Gu and Hashed co-founder Ryan Kim will join Linear’s advisory board.
• The funding will go towards accelerating the development of Linear’s testnet and mainnet, as well as promoting its platform, the protocol’s team said in a press release.
• Linear claims to be the first cross-chain compatible, decentralized delta-one asset protocol that can create, trade, and manage synthetic assets.
• “With DeFi, we are experiencing one of the most significant and important shifts in our cryptocurrency ecosystem,” said Linear co-founder Kevin Tai.
• Linear’s new investors bring experience in areas including financial innovation, key market expansion and roadmaps to institutional liquidity, Tai added.
• Linear Finance has begun integrating with Binance Smart Chain as a layer-two solution to solve challenges facing existing synthetic asset protocols, according to the announcement.
• The protocol is already working with existing DeFi projects, having announced last week a partnership with oracle network for off-chain data, Tellor.
• The public sale of Linear’s tokens is expected in mid-September, a spokesperson told CoinDesk.

Correction (Sept. 8, 11:18 UTC): Corrected detail of which investors led the funding round.

See also: ParaFi Invests and Begins Staking in Bitfinex Spin-Out Exchange

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A group of strategic investors including quantitative trading firm Alameda Research have led an investment in the decentralized finance (DeFi) protocol Linear Finance.

• The protocol announced the completion of its $1.8 million dollar private seed funding Wednesday, saying NGC Ventures, Hashed, CMS Holdings, Genesis Block and Kenetic Capital had also led the round.
• Evernew Capital, Soul Capital, Moonrock Capital, Black Edge Capital and PANONY also participated as strategic partners.
• Alongside their investments, NGC founding partner Tony Gu and Hashed co-founder Ryan Kim will join Linear’s advisory board.
• The funding will go towards accelerating the development of Linear’s testnet and mainnet, as well as promoting its platform, the protocol’s team said in a press release.
• Linear claims to be the first cross-chain compatible, decentralized delta-one asset protocol that can create, trade, and manage synthetic assets.
• “With DeFi, we are experiencing one of the most significant and important shifts in our cryptocurrency ecosystem,” said Linear co-founder Kevin Tai.
• Linear’s new investors bring experience in areas including financial innovation, key market expansion and roadmaps to institutional liquidity, Tai added.
• Linear Finance has begun integrating with Binance Smart Chain as a layer-two solution to solve challenges facing existing synthetic asset protocols, according to the announcement.
• The protocol is already working with existing DeFi projects, having announced last week a partnership with oracle network for off-chain data, Tellor.
• The public sale of Linear’s tokens is expected in mid-September, a spokesperson told CoinDesk.

See also: ParaFi Invests and Begins Staking in Bitfinex Spin-Out Exchange

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A court in China has denied an appeal by bitcoin mining giant Bitmain seeking $30 million in damages from the three co-founders of Poolin, one of the world’s largest cryptocurrency mining pools.

The Beijing No. 1 Intermediate People’s Court issued a ruling on the appeal on Aug. 31 and made it public on Sept. 8. The court’s final decision marks the closure of the year-long lawsuit that could have significantly harmed the operations of the rising rival to Bitmain’s pool business.

The court did agree with Beijing-based Bitmain’s appeal to increase fines for the Poolin co-founders for violating non-compete agreements they’d made with their former employer, Bitmain’s mining pool BTC.com.

Related: Bitcoin Mining Equipment Maker Canaan Sets $10M Buyback Program

As such, Pan Zhibiao, Li Tianzhao and Zhu Fa are required by the court to pay fines of about $200,000, $178,000 and $154,000, respectively.

But the court denied Bitmain’s more notable $10 million claims for damages from each of the three, which in Bitmain’s argument, would make up for its losses arising from Poolin’s violation of the non-compete agreements.

The $30 million, which could have made a more material impact on Poolin’s business, is an increase from an initial $4.3 million total claim made by Bitmain in April 2019.

In April, the lower-level Beijing Haidian District Court made an initial judgement that the three did violate the agreements by starting Poolin’s bitcoin mining pool during the 24-month non-compete period from August 2017.

Related: Bitcoin Miners Saw 23% Revenue Increase in August

The lower-level court required Pan, Li and Zhu to pay smaller fines to Bitmain over the violation, but denied Bitmain’s $4.3 million damages claim at the time.

The mining giant subsequently filed an appeal seeking larger fines and a hike in the total claim for damages to 210 million yuan, or $30 million, from the three.

Bitmain’s lawyers argued in a hearing in August that Poolin made some $30 million in revenue from its bitcoin mining pool fees during the non-compete period.

Given Bitmain’s pools accounted for about 30% of the market share during the period, Bitmain claimed an amount proportionate to that revenue should be handed over from the three co-founders.

Poolin’s lawyers argued in response that the case brought to trial at a time when the market shares of Bitmain’s mining equipment and mining pool operations had both declined.

Therefore, the lawyers said, even if Poolin didn’t exist, the revenue may not necessarily go to Bitmain’s two pools, BTC.com and Antpool, proportionate to their market share since there are plenty of other players in the field.

The intermediary court said in the latest ruling that Bitmain had failed to provide sufficient evidence that its business losses due to the breaches were higher than the fines and, as such, denied the $30 million claim for damages.

Read more: Bitmain Lawsuit Seeks Millions from Staffers Who Founded Rival Mining Pool

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A digital rights advocacy group in Venezuela said its government has blocked user access to two currency exchange platforms.

• According to Venezuela Inteligente, President Nicolas Maduro’s government is denying its citizens from accessing U.S. crypto exchange Coinbase and fiat remittance platform MercaDolar.
• Inteligente said the move, discovered late Tuesday evening, has no clear outcome or objective but that internet service providers (ISPs) have been part of the move to block access.
• “Crypto exchanges have been blocked in the past,” said director of Venezuela Inteligente Andres E. Azpurua in reference to ISPs blocking via a DNS block. “Until recently all of them were lifted.”
• “Venezuela has a history of blocking exchange platforms,” Azpurua added. “Especially those used to exchange local currency for foreign currency.”
• Azpurua also said the move to block access to Coinbase “particularly bothers” him as there is an abundance of crypto exchanges currently accessible to Venezuelan citizens and it’s unclear why the San Francisco-based exchange might be singled out.
• On Aug. 28, Venezuelan ISPs blocked access to two major virtual private networks – Tunnelbear and Psiphon – services that can circumvent DNS blocks, but appeared to have a minor impact on their functionality.
• Political tensions are beginning to boil over as the country’s opposition leader and self-proclaimed interim President Juan Guaido announced a “unitary pact.”
• The pact, supported by a coalition of parties, is demanding increased international pressure against Maduro ahead of a congressional election in December.
• Attempts at capital controls over who receives what type of funding in a politically charged climate could be just one reason among many for the recent ISP blocks, Azpurua noted.

Benjamin Powers contributed reporting.

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The New York Attorney General’s office (NYAG) wants Tether and Bitfinex to immediately turn over documents detailing a $900 million line of credit the first entity extended to the second, according to a new filing with a public court system.

The NYAG’s office began a formal inquiry into Bitfinex and Tether last April, when it alleged Bitfinex had lost access to more than $850 million in customer and corporate funds and covered up the shortfall by borrowing from Tether, with which it shares executives and corporate owners. The NYAG won a ruling that ordered the companies to turn over information pertaining to the extension of credit and the firms’ relationship. The respondents appealed, but lost the appeal in July.

“In the time since the [appeals court’s] ruling, the parties attempted to resolve this matter, unsuccessfully,” the filing, dated Sept. 8 (or exactly 61 days from when the appeals court ruled) said.

Related: Bitfinex Invests in Derivatives Exchange Built With Bitcoin’s Lightning Network

NYAG’s inquiry into Bitfinex and Tether, currently the largest stablecoin issuer, revealed there was a period in which the U.S. dollar-pegged USDT stablecoin was only about 74% backed by reserves. Tether later said its token was fully backed, but didn’t specify what makes up its reserves.  

The NYAG’s office is now hoping to meet with New York Judge Joel Cohen, who is overseeing the case, and to argue for a new order with a strict 60-day deadline for the crypto companies to turn over the documents.

Read more: New York Attorney General Calls Bitfinex’s Legal Stance ‘Deeply Perverse’ in New Filing

“At the conference we seek, the OAG [Office of the Attorney General] will request that the Court order the immediate production of documents and information by Respondents as required under the April 24, 2019 Order … to be completed no later than sixty (60) days from the date of the requested order,” the filing said. “The OAG will also request that the Court extend the injunction previously entered in this matter for an additional ninety (90) days.”

Related: First Mover: Buying Bitcoin’s Dip, Betting Against Tether and Weighing the Jobs Report

The injunction in question prohibits Tether from lending any more funds to Bitfinex.

“Despite our best efforts, we were not able to reach an agreement. While we continue to be willing to discuss a potential resolution, we will file our response to the proposed next steps in due course. We will continue to pursue a fair and reasonable process,” Bitfinex and Tether General Counsel Stuart Hoegner said in a statement sent by a spokesperson.

This follows a July statement where he said, “We will respect the court’s order.”

For its part, Bitfinex has sought subpoenas against various banks to try and recover its missing customer funds, which it held with Crypto Capital, an unlicensed “shadow bank” whose operator, Reginald Fowler, was arrested last year and is awaiting trial.

Crypto Capital’s holdings, which apparently included some of Bitfinex’s funds, were seized by U.S., U.K. and Polish authorities, and Bitfinex has yet to recover any of these funds.

Read the full letter below:

UPDATE (Sept. 9, 12:35 UTC): This article has been updated with a statement from Bitfinex and Tether.

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The New York Attorney General’s office (NYAG) wants Tether and Bitfinex to immediately turn over documents detailing a $900 million line of credit the first entity extended to the second, according to a new filing with a public court system.

The NYAG’s office began a formal inquiry into Bitfinex and Tether last April, when it alleged Bitfinex had lost access to more than $850 million in customer and corporate funds, and covered up the shortfall by borrowing from Tether, with which it shares executives and corporate owners. The NYAG won a ruling that ordered the companies to turn over information pertaining to the extension of credit and the firms’ relationship. The respondents appealed, but lost the appeal in July.

“In the time since the [appeals court’s] ruling, the parties attempted to resolve this matter, unsuccessfully,” the filing, dated Sept. 8 (or exactly 61 days from when the appeals court ruled) said.

Related: Bitfinex Invests in Derivatives Exchange Built With Bitcoin’s Lightning Network

NYAG’s inquiry into Bitfinex and Tether, currently the largest stablecoin issuer, revealed that there was a period in which the U.S. dollar-pegged USDT stablecoin was only about 74% backed by reserves. Tether later said its token was fully-backed, but didn’t specify what makes up its reserves.  

The NYAG’s office is now hoping to meet with New York Judge Joel Cohen, who is overseeing the case, and to argue for a new order with a strict 60-day deadline for the crypto companies to turn over the documents.

Read more: New York Attorney General Calls Bitfinex’s Legal Stance ‘Deeply Perverse’ in New Filing

“At the conference we seek, the OAG will request that the Court order the immediate production of documents and information by Respondents as required under the April 24, 2019 Order … to be completed no later than sixty (60) days from the date of the requested order,” the filing said. “The OAG will also request that the Court extend the injunction previously entered in this matter for an additional ninety (90) days.”

Related: First Mover: Buying Bitcoin’s Dip, Betting Against Tether and Weighing the Jobs Report

The injunction in question prohibits Tether from lending any further funds to Bitfinex.

A spokesperson for the companies did not immediately return a request for comment. In a July statement, Bitfinex and Tether general counsel Stuart Hoegner said, “we will respect the court’s order.” 

For its part, Bitfinex has sought subpoenas against various banks to try and recover its missing customer funds, which it held with Crypto Capital, an unlicensed “shadow bank” whose operator, Reginald Fowler, was arrested last year and is awaiting trial.

Crypto Capital’s holdings, which apparently included some of Bitfinex’s funds, were seized by U.S., UK and Polish authorities, and Bitfinex has yet to recover any of these funds.

Read the full letter below:

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More than 30% of new customers at bitFlyer, a major Japanese crypto exchange, are in their 20s, the exchange said.

• BitFlyer conducted a survey of Japanese customers who opened accounts this year between January and July, with 539 responding, CoinDesk Japan reported Tuesday.
• The number of new customers in their 20s doubled from a 2018 survey, when just 18% of respondents were part of that age group. In contrast, the percent of respondents in their 30s, 40s, 50s and 60s all shrank relative to two years ago.
• BitFlyer’s marketing manager Kenichi Nishimura cited the COVID-19 pandemic as one reason for the influx, saying young investors were looking for alternatives to the traditional stock market after major global indices crashed. Other concerns include a Financial Services Agency report saying pensions might not be sufficient to live on by the time individuals in their 20s retire.
• The crypto exchange claims its largest group of users remains in the 30-39 age range, both in Japan and its overseas markets.
• CoinDesk reported earlier this year that Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group, three of Japan’s biggest banks, are looking at developing a digital payment system that could support a shift away from physical cash without requiring crypto.

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Hedge fund manager Arca is stepping up its campaign to overhaul Gnosis, claiming the decentralized exchange and prediction market platform has deviated from its original mission.

• Over the summer, Arca discreetly asked Gnosis to make a tender offer for all circulating GNO tokens, giving investors the opportunity to cash out. Those who declined the offer should be rewarded with a 10-for-1 token split for sticking it out while Gnosis gets its house in order, according to an August slide deck outlining Arca’s proposal.

• The Block reported on Arca’s proposal last week.

• In a blog post published Tuesday, Arca Chief Investment Officer Jeff Dorman wrote that while his firm never intended for its feedback to Gnosis to become public, he’s glad it’s generated a discussion regarding token holders’ rights. The implication is that a token issuer has an obligation to these investors to stick to the business plan they signed up for.

• The post is Arca’s first public comment on the simmering tensions between the firm and Gnosis. It comes at a time when decentralized prediction markets like Gnosis are struggling to gain traction.

The post describes Gnosis’ $12.5 million 2017 token sale (which valued the project at $300 million) as an “interest-free loan.” After borrowing the money, the team “failed to deliver the products laid out in its fundraising whitepaper,” Arca contends. The products Gnosis created generate value only for its management, Arca claims.

• Luckily for all involved, the balance sheet has increased fivefold, as a result of ether (ETH) appreciating, leaving Gnosis with ample resources ($55 million worth of the second-largest cryptocurrency and $10 million of cash) to repay investors, Arca said.

• Dorman wrote that Arca often works with management teams throughout the lifecycle of an investment to achieve the goals of the community, which he described as a typically productive and mutually beneficial process. This was not the case with Gnosis, however.

• “Despite our constructive engagement, Gnosis did not take any necessary steps to remedy issues we’ve uncovered throughout our continuous due diligence and research process,” wrote Dorman. “In fact, the very first time we heard of ANY steps indicating that Gnosis is willing to remedy the issues we uncovered was as a promissory quote in the Block article, where [Gnosis founder Martin] Köppelmann commented on redoing the tokenomics of the GNO token”

In that article, Köppelmann is quoted as saying Gnosis “had already been working on an alternative path for the GNO token, which we think is much more appealing. Our own proposal includes a Gnosis DAO and gives much more ownership to GNO holders. It will be presented to the community very soon.”

• To Dorman’s mind, that quote suggested that Gnosis was open to the idea of changing its setup to better align with token holders, but was strident about what steps needed to be taken.

• “Token holders like us should not have to beg a company to disseminate a plan, nor should we have to continue to wait for promises with no details,” wrote Dorman. “For this so-called plan Mr. Köppelmann alludes to, give us a date, give us an outline, give us specific details so that the Gnosis community has the chance to provide feedback.”

• Lacking that specific feedback, Dorman stood behind Arca’s call in the slide deck for Gnosis to repay its “loan” by tendering for outstanding tokens “at the book value of its balance sheet (ETH + USD), which at current ETH prices would return over $74 per GNO token to token holders and Gnosis employees, even after reserving a generous amount of runway so that Gnosis can continue to run their business uninterrupted.”
• If all holders of the 460,000 tokens in circulation took such an offer, the payout would total $34 million. And if all the money Gnosis has on hand were returned to investors, it would come to $140 per token, or $65 million, according to Arca. Either deal would handily beat the $46.46 level GNO currently trades at on the open market.

Related: European Crypto Exchange Falls Victim to $1.6M Hack

Attempts to reach Gnosis for comment Tuesday were unsuccessful.

Big picture: The situation suggests that in addition to cash and cachet, institutions are bringing activist investing strategies to crypto.

• DigixDAO, an early initial coin coin offering (ICO) which faced a situation where its treasury was more than its market cap, faced similar activist investor behavior when it offered a question to the community – dissolve the treasury or continue making grants?

• In Wall Street parlance, a tender offer is a public solicitation to all shareholders requesting that they tender their stock for sale at a specific price during a certain time. The investor normally offers a higher price per share than the company’s stock price, providing shareholders a greater incentive to sell their shares. Arca is adapting this concept to the crypto world.

• Activist investors buy up large shareholdings in companies to acquire board seats and agitate for management and strategic changes. They have become a staple of Wall Street over the last decade, ballooning from $12 billion under management in 2003 to the activist asset class topping $112 billion by 2014.

Read more: Prediction Markets’ Time Has Come, but They Aren’t Ready for It

Correction (Sept. 8, 23:20 UTC): An earlier version of this article overstated the proceeds from Gnosis’ 2017 token sale. They totaled $12.5 million, valuing the project at $300 million.

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