Prizmabet

As BitMEX Turns 10, the Market Is Still Thankful for the Perpetual Swap

BitMEX’s CEO says he’s OK with everyone copying the exchange’s most important invention.

“Good artists copy, great artists steal,” was a favorite saying of Apple’s Steve Jobs to explain his company’s blatant copying of technology from Xerox.

Fast forward to the Web3 era, and BitMEX CEO Stephan Lutz, who was appointed to the role in late 2022, says he’s fine with competitors copying the crypto exchange’s invention of the perpetual swap, the financial instrument that underpins the crypto derivatives market. The more traders access the tool, the healthier the market, the logic goes.

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“It was copied by everyone, because that’s just open-source know-how,” Lutz said in an interview with CoinDesk. The whole world works on it, which is like the best form of flattery we can wish for in the end.”

Unlike futures — which are contracts to buy or sell an asset at a specific price on a specific date — the perpetual swap eliminates expiration and mirrors the feel of margin trading. Perpetuals act as a rolling series of short-term futures contracts using a funding rate, or payment exchanged between long and short positions, to maintain price alignment with the underlying asset.

Lutz argues that the perpetual swap was a cornerstone innovation in crypto trading because it addressed a fundamental challenge in building derivatives in the early crypto market structure.

“You faced counterparty credit risk, and there was no real structure for bringing longs and shorts together,” he said. “The perpetual swap with the funding mechanism and the insurance fund in the background sparked the whole [futures] trading industry.”

It also allows traders to react with the hyperdrive speed required in crypto.

“If you say it’s a seven-year cycle [some investors believe the market functions in this pattern] in TradFi, this cycle is six months in crypto,” Lutz, a veteran of Deutsche Börse, which operates the Frankfurt Stock Exchange, said. “You need to react to new developments very quickly.”

While BitMEX is nowhere near the largest derivatives exchange by volume anymore – that’s what happens when larger centralized exchanges, like Binance, adopt the perp and get into the derivatives business – it still has a loyal cadre of traders.

One reason for that is because BitMEX does not have its own market-making desk. It doesn’t trade against its own customers, Lutz said.

“Our funding rates can sometimes differ because we ensure completely independent price discovery, which is important for maintaining fairness,” he said. “It’s a matter of neutrality.”

During periods of high volatility, particularly market downturns, BitMEX often sees its market share spike — sometimes double — Lutz explains because of the exchange’s loyal cadre of derivatives traders.

Another 10 years

Sometimes it’s tough to imagine where a crypto company will be in 10 years, given the speed at which the industry operates.

Compare the liquidation and winding up of Lehman Brothers, to the relatively rapid resolution of FTX’s bankruptcy.

As for BitMEX, Lutz foresees the exchange maintaining its niche in bitcoin-based derivatives while selectively expanding its offerings.

And maybe sometime during this next decade, BitMEX will invent something new — and be flattered when the entire industry copies it.

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The Protocol: A Quantum Threat to Bitcoin?

Also: An Ethereum dev’s defection to Solana; Polygon’s big proving-system flex; crypto’s most influential

Welcome to The Protocol, CoinDesk’s weekly wrap-up of the most important stories in cryptocurrency tech development. I’m Marc Hochstein, CoinDesk’s deputy editor-in-chief for features, opinion and standards.

In this issue:

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What does Google’s quantum computing chip mean for Bitcoin?
Dev’s defection highlights Ethereum’s growing Solana problem
OrdinalsBot inscribes largest-ever file on Bitcoin blockchain
Polygon touts speed of Plonky3 proving system
Crypto’s most influential techies of 2024

Network News

NEED FOR SPEED: Polygon Labs claims its newest proving system, Plonky3, is the fastest on the market. (Vitalik Buterin, Ethereum’s creator, apparently agrees.) A proving system is at the core of zero-knowledge rollups, and a crucial component for transactions that rely on cryptographic security. It is the main piece of technology that creates proofs that summarize off-chain transactions, which are then sent back to a base blockchain (in this case, Ethereum). “If a zkVM is a car, you could look at the proving system as being the engine, so Plonky3 is kind of what makes everything work,” Brendan Farmer, a co-founder at Polygon, tells CoinDesk’s Margaux Nijkerk. The quicker a proof is generated, the less computing time that must be paid for. “If we improve speed, then we’re improving costs,” Farmer said. “And so what this does is it makes ZK rollup really competitive in terms of costs.” In January 2022, Polygon released its previous proving system, called Plonky2, claiming then that it was the fastest one on the market. Plonky3, the new and improved version that has more flexibility, was released in July.

IN AWE OF THE SIZE OF THIS LAD: Bitcoin inscriptions project OrdinalsBot minted what it says is the largest file ever on the oldest and most valuable blockchain: the last in a collection of 1,500 “Pizza Ninjas.” It’s part of a phenomenon in the Bitcoin development community known as “four meggers,” which are files that take up an entire block on the network. They are called four meggers because they are almost 4 megabytes (MB) big (the maximum size of each block of transactions on Bitcoin). Ordinal collectors consider them valuable due to their visibility on the blockchain. “There’s more than just bragging rights behind wanting to have the largest file on Bitcoin,” said Toby Lewis, co-founder of OrdinalsBot. “Four meggers will be on the Bitcoin blockchain forever and they already hold significant market value.” Bitcoin inscriptions, similar to non-fungible tokens (NFTs) on Ethereum, were made possible by the Ordinals protocol. It allows data to be “inscribed” onto individual satoshis, or “sats” (the smallest unit of BTC at 1/100,000,000 of a full bitcoin), making each one unique and potentially valuable. Read more.

JUMPING SHIP: Ethereum’s place near the top of the crypto market is unquestioned from the perspective of market cap. Beneath the surface – at the product, developer and decision-making levels – the original smart contracts platform continues to take a beating from Solana, one of its closest competitors. Ethereum and its many closely-linked networks are still the most important, influential, and largest platforms for decentralized finance. That lead is beginning to erode, however, with many newcomers to crypto choosing Solana’s speed and low fees. The dynamic was further punctuated Monday with news that longtime Ethereum ecosystem developer Max Resnick was moving into Solana’s orbit, abandoning his job at the developer studio Consensys. “There’s just so much more possibility and potential energy in Solana,” Resnick said in an interview with CoinDesk. He framed the decision as rooted in his own career path, but noted “frustration” with Ethereum’s inability to adapt contributed to the move. Ethereum lacks a streamlined process for making quick changes. Some see that as a point of strength for a decentralized network, while others, like Resnick, see it as a hindrance for long-term success. Read more

MOST INFLUENTIAL: This week, for the tenth time, CoinDesk has selected the people who defined the year in crypto: Our Most Influential list. (Here was the first edition in 2015.) Most Influential highlights personal achievements in the last calendar year. People are chosen for their projects, ideas, leadership, personality, or notoriety. There is a top 10 of the most Most Influential – people we feel had outsize influence or led the most important projects. Then, we profile another 40 people who were only a little less influential. (Certain prominent people in crypto – Vitalik Buterin, say – would naturally be Most Influential every year. But we choose not to feature the same names each time.) Among the tech luminaries we highlighted in this year’s series were Solana’s Lilly Liu, Optimism’s Jin Yang, EigenLayer’s Sreeram Kannan, BitVM’s Robin Linus, Rootstock’s Sergio Lerner, TON’s Steve Yun, NEAR’s IIlia Polosukhin, Akash Network’s Greg Osuri; Bitcoin’s Taproot Wizards founders … and of course, Satoshi Nakamoto, whose secret identity remains a parlor-game topic after all these years. (Writing that last piece was downright cathartic for me.) Find all the profiles here.

WHAT DOES GOOGLE’S QUANTUM COMPUTING CHIP MEAN FOR BITCOIN?

Google’s new quantum computing chip could mean bitcoin (BTC) is finished.

That was the sentiment for some on Monday as the internet giant unveiled Willow, a quantum supercomputer that can perform certain computational tasks in just five minutes that would take classical supercomputers an astronomical amount of time—specifically, 10 septillion years (or one followed by 24 zeroes; a trillion trillion).

10,000,000,000,000,000,000,000,000. Such an amount of time is greater than the existence of the entire universe at 13.8 billion years.

In superficial theory, such a powerful computer could mean no passwords are safe, encrypted messages are intercepted, nuclear weapons codes are found out, and almost anything can be unlocked by brute-forcing combinations of numbers and letters.

But it isn’t all doom and gloom yet.

While quantum computing does indeed pose significant threats to current security systems, it’s not a master key to the universe, at least not right now. And there is no looming threat to Bitcoin, either.

Quantum computing leverages the principles of quantum mechanics, using quantum bits or qubits instead of traditional bits. Unlike bits which represent either a 0 or 1, qubits can represent both 0 and 1 simultaneously due to quantum phenomena like superposition and entanglement. This allows quantum computers to perform multiple calculations at once, potentially solving problems that are currently intractable for classical computers. Willow uses 105 qubits and demonstrates an exponential error reduction as the number of qubits increases. This is a critical step towards building a practical, large-scale quantum computer, said Google CEO Sundar Pichai.

Bitcoin uses algorithms like SHA-256 for mining and ECDSA for signatures, which might be vulnerable to quantum decryption. And the short answer is that quantum computers, even advanced ones like Google’s Willow, do not possess the scale or error correction capabilities needed to immediately decrypt widely used encryption methods like RSA, ECC (used in Bitcoin transactions), or AES (used in securing data).

If quantum computers like Willow reach a scale where they can easily factor in large numbers, they could potentially break these encryption schemes, compromising wallet security and transaction integrity. That would require quantum computers with millions or even billions of “qubits” with extremely low error rates, far beyond the current technology.

“Google claims to have demonstrated ‘below threshold’ error correcting capabilities with their latest quantum chip,” said Chris Osborn, founder at Solana ecosystem project Dialect, in a post on X (formerly Twitter). “‘Below threshold’ is industry jargon for turning physical qubits, which are noisy, s*itty quantum bits that are basically useless, into logical qubits, which are multi-qubit abstractions that correct for errors & let you actually perform real computation.” he added.

It takes roughly 5,000 logical qubits “to run Shor’s algorithm to break encryption. In other words, millions of physical qubits are needed to break encryption. Google’s chip today: 105 physical qubits,” Osborn noted.

Until then, cryptocurrencies (and other sectors) have time to develop quantum-resistant algorithms.

CLICK HERE FOR THE FULL ARTICLE BY COINDESK’S SHAURYA MALWA

Money Center

Hole in the wallet

Magic Eden’s $5B Token Airdrop Raises Crypto Wallet Security Questions

Deals and grants

Binance Partners With Circle to Push USDC Stablecoin Adoption Across the Globe
Stablecoin Trading Startup Perena Tries Its Luck on Solana

Happy perp-day

As BitMEX Turns 10, the Market Is Still Thankful for the Perpetual Swap

Regulatory and policy

El Salvador and Argentina Regulators Sign Agreement to Help Develop Crypto Industry

Calendar

Dec. 4-5: India Blockchain Week, Bangalore
Dec. 5-6: Emergence, Prague
Dec. 9-12: Abu Dhabi Finance Week
Dec. 11-12: AI Summit NYC
Dec. 11-14: Taipei Blockchain Week
Jan 9-12, 2025: CES, Las Vegas
Jan. 15-19: World Economic Forum, Davos, Switzerland
January 21-25: WAGMI conference, Miami.
Jan. 24-25: Adopting Bitcoin, Cape Town, South Africa.
Jan. 30-31: PLAN B Forum, San Salvador, El Salvador.
Feb. 1-6: Satoshi Roundtable, Dubai
Feb. 19-20, 2025: ConsensusHK, Hong Kong.
Feb. 23-24: NFT Paris
Feb 23-March 2: ETHDenver
May 14-16: Consensus, Toronto.
March 18-19: Digital Asset Summit, London
May 27-29: Bitcoin 2025, Las Vegas.

Another SEC Democrat to Drop Out, Leaving Republicans Running Agency by February

Commissioner Jaime Lizárraga, a Democrat, said he’ll join Chair Gary Gensler in exiting the U.S. securities regulator, which will leave two Republicans and a single Democrat.

Another Democratic commissioner on the Securities and Exchange Commission is following Chair Gary Gensler out the door in January, leaving the agency with a Republican majority as it weighs a likely course shift under the new administration of President-elect Donald Trump.

Commissioner Jaime Lizárraga is leaving January 17, he said in a Friday statement, which could give Republicans a head start on what could otherwise have been months of delay in redirecting the regulator’s policies — including on cryptocurrency. At this point, Caroline Crenshaw will be the sole Democrat on the five-member commission going into 2025, and her term has already expired, putting her into an extension that can last as long as about 18 months.

Lizárraga said he’s leaving because his wife has been suffering with a serious illness.

“In reflecting on the challenges that lie ahead, we have decided that it is in the best interests of our family to close this chapter in my 34-year public service journey,” he said in the statement.

The commission has been led in recent years by Gensler, who announced this week that he’d be resigning when Trump is sworn in on January 20. Under Gensler’s leadership, the commission had maintained an aggressive campaign of enforcement against crypto companies, arguing that digital assets platforms such as Coinbase Inc. (COIN) and Binance are operating as unregistered securities exchanges and that many of the tokens transacted on their platforms are securities.

A wide array of enforcement actions have been based on that stance, and they’ve developed into federal court cases in which the industry has countered the agency’s arguments on tokens as securities. That’s the situation that will be inherited by the new commission.

If Trump appoints one of the sitting Republican commissioners as an acting chair — widely expected to be Mark Uyeda — that new commission chief can begin shifting policy priorities and the agency’s legal stance on crypto. With a two-member majority alongside Commissioner Hester Peirce, the two Republicans will be running the agency’s agenda while the rest of the commission is filled out by Trump’s nominations.

Gensler said on Friday that Lizárraga “has been steadfastly focused on elevating the interest of everyday Americans.”

“At the SEC, he has been an excellent partner in our work to protect investors, facilitate capital formation, and ensure markets work for investors and issuers alike,” Gensler said in a statement.

A Month’s Worth of Rain Falls in a Single Day in Parts of Spain

The deluge flooded streets, breached rivers and destroyed crops along the Mediterranean coast. There could be more rain still to come.

Manuel Yerai, a farmer in southern Spain, watched helplessly on Monday night as hail the size of tennis balls ripped through the plastic sheeting covering his pepper plants, as Spain faced one of its most destructive rainfalls this year.

“My greenhouses look like they had been shot at,” Mr. Yerai, 40, said on Tuesday afternoon, speaking by phone from his farm in El Ejido, an agricultural region in Andalusia. Around him, he said, windows were shattered and cars were damaged. “The ground is full of sparrows,” he said, “dead on the sidewalks.”

Mr. Yerai is one of millions of people in southern and eastern Spain — including cities such as Valencia, Murcia and Malaga — hit by the immense deluge, which began in earnest on Monday night. In some areas, more than a month’s worth of rain fell in a day. In the region of Andalusia, it was four times the amount of rain that usually falls in all of October.

Spain’s meteorological agency said that between 150 and 200 liters per square meter, or roughly 40 to 50 gallons per square yard, fell in some areas over a two-hour period. And meteorologists expect the rains to continue until at least Thursday, if not through the weekend.

A helicopter crew rescued a stranded person after intense rainfall in Alora, Spain, on Tuesday.Credit…Jorge Zapata/EPA, via Shutterstock

“These are huge amounts of rainfall,” said Rubén del Campo, a spokesman at the meteorological agency. He said that the amount of rainfall indicated “extreme danger,” and urged people to not travel unless it was strictly necessary.

Israel Hits Gaza Town for Third Time in Days, Killing Dozens, Officials Say

Gazan agencies said that children were among those killed in the strike in Beit Lahia. A U.S. State Department spokesman called the strike “a horrifying incident with a horrifying result.”

The Israeli military on Tuesday hit a town in the northern Gaza Strip for the third time in just over a week, striking a residential building and killing dozens of people, Gazan officials said, as Israel intensified its offensive in the territory after more than a year of war.

The Palestinian Civil Defense, a Gazan emergency service, said at least 55 people had been killed in the strike in the town of Beit Lahia. Gaza’s Health Ministry put the toll higher, saying that at least 93 people had been killed, including 25 children.

The Israeli military, which asserts it is fighting a regrouped Hamas presence in northern Gaza, said that it was “aware of reports that civilians were harmed” and was looking into the details. The area was previously evacuated, it said, and was “an active combat zone.”

Matthew Miller, a U.S. State Department spokesman, called the strike in Beit Lahia “a horrifying incident with a horrifying result” and noted that many of the children reportedly killed had probably fled strikes in other parts of Gaza. He said the Biden administration had contacted the Israeli government for more information.

Hamas condemned the strike as a “horrific massacre” and demanded international action to stop Israel.

Israeli forces struck another residential block in Beit Lahia on Sunday, killing and wounding dozens, according to the civil defense service. They also hit a residential building in the town on Oct. 20, killing dozens of people, Palestinian officials and emergency workers said.

DeFi Cover Provider Nexus Mutual Backs New Crypto Insurance Broker Native

Nexus Mutual is also behind a new insurance alternative on Coinbase’s L2 network called Base DeFi Pass.

Nexus Mutual, the decentralized alternative to traditional insurance geared towards risks involving digital assets, is widening its distribution capabilities by backing a dedicated crypto insurance broker called Native.

Native goes live with $2.6 million of seed funding led by Nexus Mutual, and the two firms are offering $20 million on-chain cover per risk, according to a press release on Tuesday. Nexus Mutual currently has a capital pool of about $200 million, mostly denominated in ETH, the token of the Ethereum blockchain, meaning the mutual will be able to write multiple coverage lines per risk from day one, Nexus Mutual said.

There has always been a dire shortage of insurance capacity within the crypto industry. At a rough estimate, about 1% of crypto assets are insured today, compared with the traditional world where a general rule of thumb is that about 7% of GDP is insured.

“Native’s role is to help solve this chronic under insurance problem,” said Native co-founder and CEO Ben Davies in an interview. “No industry can grow without a liquid insurance market and so we have built a commercial insurance broker on-chain, which is what the market has really been missing.”

The aim is to increase capacity by connecting businesses with Nexus’s capital pools, while giving clients the ability to pay in crypto, or be paid in crypto if there is a claim, said the broker’s other co-founder Dan Ross. In addition, Native will go beyond mere distribution by running a capital pool on Nexus, he said. It means the firm will also be involved in underwriting in the form of a managing general agent (MGA) positioned on top of Nexus Mutual.

Since starting out in 2019, Nexus Mutual has underwritten about $5 billion of crypto assets and paid out $18 million in claims. This has involving various risks associated with decentralized finance (DeFi), for instance, that conventional insurers might struggle to meet.

The protocol also allows its members to deploy assets into syndicates, in a way similar to how the Lloyd’s of London market operates, for which they receive NXM tokens, which can be used to back certain risks. Like being a Lloyd’s investor, or “Name,” there is a risk attached to this, but yields can reach around 25%, according to Nexus Mutual founder Hugh Karp.

“We understand crypto native risks better than anyone else and we’ve got a large amount of capacity that’s specifically looking to deploy into crypto risks and crypto businesses,” Karp said in an interview. “We aren’t like some big insurance company that’s trialing this out as a proof of concept for a few years and then it disappears.”

Base DeFi Pass

Nexus Mutual’s insurance alternative is also available to users of many of the main protocols on Coinbase’s layer 2 network, Base, via a product called Base DeFi Pass, created by crypto insurance startup OpenCover.

Base DeFi Pass covers a clutch of high profile protocols on Base including the likes of Uniswap, Compound and Morpho, and is designed to be a “set and forget” option where one set of cover is all that’s needed across a range of applications, according to OpenCover CEO Jeremiah Smith.

The type of risks covered include smart contract code bugs, exploits and hacks, while things like phishing attacks are excluded, as are losses related to market price movements of assets used or relied upon by the covered protocol.

“Base Pass is another innovation being catalyzed by Nexus Mutual,” Smith said in an interview. “You purchase one lot of cover and you’re covered on most of the leading protocols on Base, rather than having to come to Nexus and OpenCover each time and have to rebalance everything.”

In order to bring lots of people on-chain, Base needs to make those users feel confident about interacting with DeFi, said Base creator Jesse Pollak.

“OpenCover’s Base DeFi pass adds an extra safety net, so people can feel more secure and protected when they participate in the open DeFi ecosystem on Base,” Pollak said via email.

DWF Labs Fires a Partner After Drink-Spiking Allegations

An X account posted that on Oct. 24 a partner at DWF drugged her at a bar — and was caught on camera doing it

DWF Labs, a crypto trading firm, said it fired one of its partners following social media allegations that one of its employees had spiked a woman’s drink at a Hong Kong bar.

In a press release, the company said it dismissed a partner from “management and operational roles effective immediately” and called the allegations “deeply concerning.”

The company, which said it’s investigating the matter, did not name the partner. A representative for DWF referred CoinDesk to the press release.

“From day one, our team has been built on transparency and upholding the highest ethical standards. We do not condone actions that go against our core values of integrity, respect, and accountability,” the press release said.

Earlier Tuesday, X account @hananotsorry posted that on Oct. 24 a partner at DWF drugged her at a bar — and was caught on camera doing it. The post did not name the person but said police had been contacted.

Germany’s business groups alarmed over land border controls impacting economy

German industries are concerned about border checks causing delays and higher costs, calling for policies like green lanes to ease the impact on trade and workers.

Germany’s business groups are raising the alarm over fears that the country’s newly reintroduced land border controls could impact the economy.

The country’s Chamber of Commerce and Industry says companies are experiencing delays, which is especially problematic for time-sensitive goods such as food.

However, it’s not just the movement of products that is of concern, but of people.

The Chamber of Commerce in Frankfurt Oder, a border town near Poland, is advocating that workers coming into Germany pass through the checks more quickly with special government certificates.

“We have seen and experienced with the enterprises in our region that they are now having problems commuting,” said Daniel Felscher, a consultant at the Chamber of Commerce and Industry Ostbrandenburg.

“Also regarding the traffic of goods between the borders and especially with the workforce that Germany relies on in specific economic areas, we have to have those commuters, and we cannot lose them because we need them.”

Frank Huster, the managing director of the Federal Association for Freight Forwarding and Logistics (DSLV), told Euronews that his organisation was especially concerned about whether other European countries would bring back border checks.

Huster urged Germany to implement the green lanes policy that was in place during the pandemic, which allowed freight vehicles to pass through border crossings quickly.

“Road checks when entering Germany could also delay many trucks crossing the border. This also affects cross-border commuters who work in German logistics facilities. Restrictions on the free movement of persons can therefore also mean delays and cost increases for the economy,” Huster said.

“A return to barriers in Europe would be disastrous for the free movement of goods and the internal market.”

Extra checks to increase recession risk?

The extra border checks were put in place last month after the so-called Islamic State group claimed responsibility for an attack at a festival where three people were stabbed to death.

The interior ministry says the checks are meant to decrease irregular migration and stop criminals.

“We want to reduce irregular migration further, stop migrant smugglers and criminals, and detect Islamists before they can do any harm,” said Nancy Faeser.

“We continue to work closely with our neighbouring countries. We want to make sure that border control measures affect cross-border commuters and people living in the border regions, as well as businesses and commerce, as little as possible.”

The credit insurer Allianz Trade said it expected delays could decrease trade and increase the risk of a recession.

“The additional waiting times at the borders are also likely to increase transport and goods costs for imports by around 1.7% (services: 1.5%) and thus reduce both the overall trade volume and competitiveness, which is already at a low level for German manufacturers,” Allianz Trade stated in an email to Euronews.

“The temporary border controls could furthermore trigger a chain reaction: trade could lose up to €1.1 billion per year in the worst case. As a result, recession risks could increase further and possibly lead to economic losses in gross domestic product (GDP) of up to around €11.5 billion.”

Related

Could Germany’s new border controls end up getting revoked by Brussels?
Germany reinstates land border checks for six months in much-criticised move

An association representing Germany’s transport and logistics industry has also warned the checks could end up increasing costs for companies, leading to higher prices for consumers.

“There could be traffic jams or there could be delays, which will increase the cost for our truck companies, and they will have problems with driving and rest time, and they have to get higher prices for the transport solution, and this is a big problem,” said Dirk Engelhardt, the CEO of the Federal Association of Road Haulage, Logistics, and Disposal (BGL).

The group says if such delays happen, it will lobby the European Commission to set up special lanes so that most trucks can bypass the controls and to focus on tougher external border checks.

Ripple Plans ‘Cross-Appeal’ in SEC Case

The SEC announced it was filing an appeal last week.

Ripple Labs will file a cross-appeal in its ongoing case against the U.S. Securities and Exchange Commission, the company announced Thursday, as part of an effort to maintain its legal defenses as the SEC’s own appeal in the case winds its way through an appeals court.

The SEC filed a notice of appeal earlier this month in its long-running case against Ripple, which the regulator first sued in December 2020. Ripple’s cross-appeal is intended to ensure that the company preserves its points and arguments in the case, Chief Legal Officer Stuart Alderoty told CoinDesk, though he did not go into detail on what the company may argue in its motion.

“We’re really doing that to make sure that we leave nothing on the table, including the argument that there cannot be an investment contract without there being the essential rights and obligations found in a contract,” he said.

District Judge Analisa Torres ruled in July 2023 that Ripple’s programmatic sales of XRP to exchanges, which in turn sold the token to retail customers, did not violate federal securities laws. Under her ruling, XRP is not deemed to be a security.

Like the SEC’s filing last week, Ripple’s initial filing is just a notice that it will submit a more comprehensive argument in the future. Alderoty said the two parties would have to fill out a form in the coming weeks laying out “a fairly high level description” of their arguments, but neither the regulator nor the company would get into the specifics until their opening briefs are filed.

The SEC’s brief may come near the end of January, while Ripple’s opening brief – which would be combined with its opposition to the SEC’s brief – would come sometime after that, he said.

“I don’t think that folks who are paying attention should be much distracted by these efforts to create confusion, because I think the judge got it right, and I think they should welcome the opportunity for the court of appeals to roll on this issue and finally, bring the clarity that we need,” Alderoty said about the appeals court taking up the case – though, he added, the U.S. “really needs a policy solution” from legislators rather than court rulings.

“Short of that, and while we don’t have one, it’s going to be up to the courts, and we’re willing to continue to fight that fight and collect victories and bring clarity to the industry through the litigation process,” he said.

Binance, FalconX and the Curious Case of 1.35M Missing Solana Tokens

Crypto prime broker FalconX couldn’t figure out who the SOL tokens belonged to until crypto exchange Binance came asking for them.

A brokerage firm has a few key jobs. One involves holding assets for clients and keeping track of who owns what.

FalconX, a cryptocurrency prime brokerage, apparently failed to do that for years with a pile of 1.35 million solana (SOL) tokens, now worth about $190 million, that it’d had in its possession since 2021.

Then, Binance, the largest crypto exchange and a key liquidity partner of FalconX, recently came forward as the rightful owner and asked for its SOL back.

It’s unclear exactly how FalconX was unable to keep track of the crypto and how Binance itself seems to have lost track of the money for years. But the situation raises questions about accounting systems and controls.

‘Reconciliation anomaly’

Around the time the trove of mystery SOL appeared in FalconX’s coffers, the value of the tokens lingered at around $20 to $30; not long after the collapse of FTX in late 2022, SOL sank under $10. At those prices, even 1.35 million Solana tokens are chump change to Binance, which has over $110 billion of assets in reserve and services over 90 million customers worldwide.

FalconX, when contacted by CoinDesk, confirmed that there had been “a reconciliation anomaly” involving solana tokens. The company reconciled its books against all exchanges, clients and partners, and no one showed records of a transaction, according to a FalconX spokesperson.

Binance, when contacted by CoinDesk, said its customers were never at risk of losing money as a result of the situation. Binance would’ve simply absorbed the loss itself if the 1.35 million tokens had never been found.

To earn money on the assets they’re in charge of hanging onto, prime brokerage firms like FalconX typically put assets to work, using them as collateral, or for lending or arbitrage opportunities. But that did not happen in this case as the assets were held in safekeeping, a FalconX spokesperson said.

Not long after CoinDesk came asking questions about the lost and found solana tokens, the companies responded via a joint statement, saying the assets in question were being returned to Binance and that the matter was now fully resolved.

“Binance and FalconX continue to operate business as usual,” the firms said in an email.

‘Weaker control environment’

Mysterious transactions and reconciliation head-scratchers happen in traditional finance, too, but crypto could be uniquely prone to a situation of this sort, where assets go unclaimed for years, inflating hugely in value in that time. Of course, crypto is a new area of finance, running on rapidly evolving infrastructure, which is home to highly volatile assets.

Speaking broadly, big auditing firms like PwC agree the relatively young crypto space is potentially susceptible to such reconciliation issues. “Mainly I would say the unregulated space is where things are less mature and there is a weaker control environment,” said Peter Brewin, a partner at PwC Hong Kong who specializes in digital assets, Web3 and the metaverse with a focus on tax and regulation.

FalconX, which was established in 2018 and valued at $8 billion at the time of a mid-2022 funding round, offers institutional customers a dashboard to manage portfolios and connect to a range of crypto exchanges, custodians, market makers and prop shops. Altogether, the brokerage handles over 100 million transactions a month, using a complex system of omnibus and subaccounts.

Binance recently made a move to close a VIP fees loophole used by prime brokerage firms, citing a lack of transparency in the way these firms structure their client accounts.

In the wake of FTX’s collapse, crypto trading firms have been focused on keeping critical functions in safely segregated structures, as Anatoly Crachilov, CEO and founding partner of Nickel Digital Asset Management, points out.

“Trading venues running matching engines do not hold assets, while custodians safeguard client assets, with market value further validated and reported by an independent fund administrator,” Crachilov said in an email.