January 11, 2023

The biggest crypto news and ideas of the day

Were you forwarded this newsletter? Sign up here.

Don't want this newsletter? Unsubscribe

Welcome to The Node. This is Daniel Kuhn, here to take you through the latest in crypto news and why it matters. In today’s newsletter:

In the news: FTX has recovered some $5 billion in assets. Gemini escalates its dispute with DCG and Genesis. And Binance admits its BUSD stablecoin was not always backed.
The takeaway: David Z. Morris writes about the emerging conflict and synergy between artificial intelligence and crypto.

Want to join the most important conversation in crypto?

Secure Your Seat

Customer Money

Crypto exchange FTX has recovered more than $5 billion in total assets, not including another $425 million in crypto held by Bahamian securities regulators and its illiquid altcoins, a bankruptcy attorney said in a Wednesday hearing. Though far above the previously stated total of $1 billion, there's still money unaccounted for owed to customers. Meanwhile, some $91 million in FTX creditor claims is fetching around 13 cents on the dollar, according to Xclaim, which is listing these claims. For comparison, claims for Voyager Digital are trading at 41 cents – a reflection of how easy people think it will be to resolve FTX’s legal issues. Elsewhere, Gemini, in an escalation with its ongoing conflict with DCG, has terminated its “master loan agreement” with Genesis. Gemini loaned some $900 million in customer funds from the exchange’s now-terminated “earn” platform to the CoinDesk sister company and is demanding the money back.

Big Binance

A New York bankruptcy judge will allow Binance.US to bid on over $1 billion of crypto broker Voyager Digital’s assets. The U.S.-based exchange agreed to purchase those assets in December after a previous deal with FTX fizzled. Meanwhile, the global Binance exchange has won approval to operate in Sweden (its seventh European entrance). This came a day after a Binance spokesperson admitted the exchange’s BUSD stablecoin hasn't always been backed fully with reserves, following separate reports from a crypto investigator, Protos and Bloomberg. Finally, Indian crypto exchange WazirX released a proof-of-reserves report that showed 90% of its user assets are held in Binance wallets.

Growing Market

Hong Kong's Securities and Futures Commission will allow retail trading in a select group of “highly liquid” cryptocurrencies as it attempts to introduce regularity clarity to the market. The watchdog will propose a subset of tokens subject to approval by the agency’s CEO, Julia Leung. Meanwhile, three-month bitcoin (BTC) futures listed on the Chicago Mercantile Exchange widely considered a proxy for institutional activity are drawing a premium over the BTC spot price for the first time since FTX went bust. Lastly, decentralized finance platform Ondo Finance has launched three products intended to allow global stablecoin holders to invest directly in bonds and U.S. Treasurys. The funds, custodied by Coinbase, will invest in short-term government Treasurys, short-term bonds and high-yield corporate bonds and other investments such as exchange-traded funds.

Sound Bites

"FTX is gone. So from a competitive standpoint, Coinbase does not have many legitimate competitors longer term."

– Oppenheimer senior analyst Owen Lau, on CoinDesk TV's "First Mover"

The Takeaway: AI and Crypto

The past six months has been a banner stretch for the development of artificial intelligence (AI). Image processors such as Midjourney and text generators including ChatGPT have sparked immense public fascination and debate. That could pose a problem for tech innovators focused on public blockchains and distributed computing. At minimum, AI will be a huge competitor for investment funding for the foreseeable future, particularly given the reputational damage various scammers and frauds inflicted on crypto over the past year.

There are also deeper differences between the structure and underlying ethos of blockchains and artificial intelligence. Up to now, AI has effectively required large, centralized data caches for training, which could help create the kind of privacy and security risks to which crypto and blockchain communities are deeply opposed. Further, this dependence on data caches makes AI ripe for capture by large, centralized corporations. We’re seeing this unfold right now: Microsoft’s gargantuan $10 billion bet on Open AI and ChatGPT is clearly premised on the restrictive deployment of the technology in corporate products.

One of the clearest viable applications of blockchains is for managing distributed computing resources. Blockchains can be used to coordinate and verify services to a network, with tokens providing incentives to contributors. So far, blockchains have been deployed to incentivize and manage things such as distributed cloud storage (Filecoin) and distributed high-end graphics compute (Render Network). Though a number of blockchain projects have extended the logic of tokenized distributed computing to artificial intelligence.

The most significant is probably SingularityNET, launched in 2017 by veteran AI researcher Ben Goertzel. Goertzel has been working on AI since the late 1980s, is the author of more than a dozen academic books on the topic and is credited with popularizing the term “artificial general intelligence.” His approach to AI is a useful contrast to the implied beliefs of AI’s current mainstream poster boy, Sam Altman. Altman is the CEO and co-founder of OpenAI, but he is also behind Worldcoin, a project that wants to create unique digital identities for global citizens by scanning their irises.

Sam Altman’s Worldcoin is specifically geared towards implementing the main solution Silicon Valley has offered to this conundrum: universal basic income (UBI). The idea is that once AI wipes out everybody’s jobs, a government or similar entity will have to tax the few centralized AI administrators at a high enough rate to redistribute wealth to the plebeian masses. I’m a leftist, and believe that some degree of redistribution of wealth makes society more stable and productive. But even to me this Silicon Valley UBI vision is an authoritarian nightmare combining the worst features of bloated politburo communism and grasping monopolist capitalism. It would be a future in which the many are completely dependent on the generosity of the few.

Goertzel, on the other hand, often sums up SingularityNET’s approach to artificial intelligence in the words of pioneering computer science researcher Marvin Minsky, who envisioned AI developing as “a society of minds.” Goertzel describes SingularityNET as an open architecture for knitting together various so-called “narrow” artificial intelligences, such as language processors or navigators or image generators, that are each good at specific things. A composable AI network could democratize AI development in the same way cryptocurrencies and smart contracts democratize finance.

– David Z. Morris

Planetarium Labs poised Nine Chronicles for winter-proof sustainable growth

As winter inevitably yields to spring, crypto winters eventually end as the prices of widely traded coins come back. The same goes for such in-game currencies as nine chronicles gold, or NCG.

When the price of the NCG token fell during crypto winter, Planetarium Labs, the publisher of the online game it represents, came up with a multipronged strategy to support the token’s price and reinforce a sense of confidence among investors. The best way to buttress its value, Planetarium Labs concluded, is to increase demand for the token by giving players more things to do with it and by burning revenue earned from players’ activities, denominated in NCG or its wrapped WNCG version. Continue reading.

*This is sponsored content from Planetarium

Off-Chain Signals

Silvergate Bank loaded up on $4.3 billion in Home Loan bank advances, federal money meant to backstop mortgages, in an affront to crypto’s “no bail out” ethos (American Banker). Relatedly, AB’s Kate Berry asks if scrutiny of the FHLB system change anything (American Banker)
A LUNA investor has voluntarily withdrawn a proposed class-action suit against Do Kwon’s Terraform Labs (Blockworks)
Dutch bitcoin exchange Bitvavo rejects DCG’s plan to repay 70% of Genesis’ debt (Decrypt)
Bankruptcy Filing Reveals Tom Brady, Kevin O’Leary and Coinbase Among Major FTX Creditors (Decrypt)
Two investment managers, Venom Foundation and Iceberg Capital, set up $1 billion blockchain fund (Reuters)
Progressives sing regulators’ praises for preventing crypto contagion (American Prospect)

Consensus 2023 is a call to action for developers, investors, founders, policymakers, brands and others to come together and find solutions to crypto's thorniest challenges and finally deliver on the technology's transformative potential. Use code NODE15 to save 15%. Register now.

Low Status?