February 17, 2023

The U.S. Securities and Exchange Commission (SEC) is suing Terraform Labs, the company behind failed stablecoin Terra USD, and its co-founder Do Kwon for fraud and the sale of unregistered securities, among other claims. The SEC alleged that investors were misled about the stability of the algorithmic stablecoin UST, the depegging of which from the U.S. dollar “spelled doom for the entire Terra ecosystem.” The collapse of TerraUSD last year sent shockwaves throughout the cryptocurrency industry and was followed by a wave of bankruptcies of prominent firms, and ultimately the meltdown  of crypto exchange FTX in November.

Do Kwon (Terra, modified by CoinDesk)

DeFi protocol Platypus Finance suffered a flash-loan attack worth over $8.5 million resulting in its stablecoin USP losing its dollar peg, and falling to 48 cents. The hacker had exploited a flaw in the USP solvency check mechanism, making Platypus smart contracts think USP was fully backed. “They used a flash loan to exploit a logic error in the USP solvency check mechanism in the contract holding the collateral,” Platypus tweeted. A flash loan is a form of unbacked borrowing used on DeFi lending protocols to make quick profits when opportunities arise. Hackers make use of them to destabilize and drain tokens from such protocols.

Bankrupt crypto lender BlockFi is looking to dismiss the bankruptcy case of Emergent Fidelity Technologies, a shell company 90% owned by FTX founder Sam Bankman-Fried. Emergent is the owner of 56 million shares of Robinhood (HOOD) and little else. BlockFi is claiming legal access to the stock, worth nearly $600 million at HOOD’s current price, as security for a loan made in November. By filing for bankruptcy in the U.S., Emergent liquidators are making things more complex, according to BlockFi, describing it as a “futile act,” given that the company has no employees, income or business. The Robinhood shares were seized by the U.S. Department of Justice in January as part of its investigation of fraud against Bankman-Fried.

The forthcoming Shanghai upgrade of the Ethereum network, which will see around 16.5 million ETH become available for withdrawal, could bring about volatility in the world’s second largest crypto that did not occur during September’s Merge.

While the Merge, in which Ethereum switched from a proof-of-work mechanism to proof-of-stake, had no direct economic effect, Shanghai will change the supply and demand of ETH, according to a spokesperson for institutional digital asset liquidity provider OrBit Markets.

"Some $25 billion worth of ETH will become available for withdrawals and sale,” OrBit said. “With the staking yields expected to decrease following the upgrade, investors who previously staked may un-stake and move to other assets offering better yields. This would create large selling pressures on the ETH price.”

Furthermore, volatility could emerge in the days leading up to the upgrade (scheduled in March) in a sign of traders pre-empting turbulence to come thereafter.

Source: Glassnode, Decentral Park Capital

Since 2015, Consensus has served as the premier event for calibration, collaboration and resolution among tens of thousands of professionals and builders forging the future of finance, technology and the new digital economy. Join us in Austin April 26-28 to connect with developers, investors, founders and brands that are serious about delivering on crypto and Web3’s transformative potential. Take 15% off with code FM15. Learn more and register.