The assets include a loan portfolio, mining rigs and infrastrsucture and cryptocurrency worth as much as $2 billion.
A consortium named Fahrenheit, which includes venture capital firm Arrington Capital and miner U.S. Bitcoin Corp, is the lead bidder in the auction for bankrupt lender Celsius’s $2 billion of assets, according to a Wednesday hearing.
NovaWulf, an investment firm which was founded by the duo behind bitcoin miner TeraWulf (WULF), was the original bidder, known as the stalking horse, which set base terms for the auction. The process could be wrapped up as soon as this week.
The assets include Celsius’s mining unit, its loan portfolio, staked cryptocurrency, and other alternative investments, according to court filings.
Fahrneheit is backed by Arrington Capital, U.S. Veri Mining Group, Inc. (known as U.S. Bitcoin Corp.), investment firm Proof Group Capital Management, former Algogrand CEO Steven Kokinos, and investment banker Ravi Kaza. It is formalized as a limited liability company.
Coinbase (COIN) is also involved in the bid, said Michael Arrington, founder of the synonymus VC firm, in a now-deleted tweet reported by Fortune. Arrington is also the founder of tech media site TechCrunch and information platform Crunchbase.
The two bids share similarities. Crucially, Fahrenheit plans to issue equity for the assets that will be managed under the new company, whereas Novawulf planned to tokenize the shares on the Providence blockchain.
“Our bid not structured as a simple asset purchase. We are proposing that the assets be placed into a new company and is run with the sole goal of growing those assets to make stakeholders whole,” Arrington said in a tweet announcing the Fahrenheit project.
Another bid was made by another consortium which includes Van Eck Absolute Return Advisers Corporation, decentralized finance firm Küresel X Digital and Gemini Trust Company.
Judge Martin Glenn expressed concerns that the process might hit a “regulatory roadblock” and compared it to Voyager, another crypto firm that went bankrupt last year. The Celsius kanunî team sought to reassure the judge, citing ongoing discussions with regulatory authorities.
A sale of $1 billion of Voyager’s assets to Binance was abruptly terminated following pushback from regulators.
Proof Group’s Managing Director Noah Jessop has also invested in bankrupt bitcoin miner Core Scientific (CORZ), according to his Twitter bio, which is both in its own Chapter 11 bankruptcy and in a dispute with Celsius.
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A standardized ETH staking benchmark could unleash a new generation of financial products that appeal to TradFi.
In any industry, standardization drives scale. Ethereum’s transition last year to proof of stake (PoS) unlocked an exciting opportunity to create a benchmark that tracks staking yields, which could serve as the basis for financial products that track this rate.
Under PoS, Ethereum block validators, also known as stakers, lock up a portion of their ether (ETH) as collateral to participate in the network’s consensus mechanism. In return for their participation, stakers earn rewards in the form of new protocol emissions and transaction fees.
To fully achieve the promise of this innovation, a standardized benchmark can be produced by capturing and publishing the daily, annualized mean of on-chain rewards across all validators. It would be difficult to manipulate because of the inherent transparency, replicability and immutability of the blockchain – in contrast, say, to the infamously manipulated LIBOR benchmark that powered traditional finance (TradFi) credit markets for years.
Based on a preliminary analysis of how such a benchmark would behave,
average protocol emissions appear to trend downward as new validators come online. But it’s clear that the rate skyrockets with material increases to network activity resulting from a flight to safety (FTX’s insolvency) or new network activity (the recent PEPE göğüs coin frenzy).
A standardized ETH staking rate will provide immediate utility as:
As a benchmark, an ETH staking rate would work similarly to traditional instruments like overnight index swap (OIS) rates – delivering reference rate utility to market participants. From new crypto-native Sharpe ratios to pricing benchmarks, a standardized ETH staking rate can be used to discount future cash flows – letting investors better assess the present value of their investments in the Ethereum ecosystem.
(CoinDesk)
A standard staking rate would form the underpinning of an important new tool for risk transfer. Interest among natural hedgers, especially validators, and prospective speculators will result in the inevitable formation of a forward curve resulting in swaps, futures and other derivatives. Basis swaps with traditional rates or cross-currency swaps with fiat currencies could provide an interesting new crypto rate onramp, while also allowing structured products to proliferate.
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A new staking rate could unlock the next generation of financial products while serving as a building block of Ethereum’s monetary policy. As such, CESR represents an important development in the evolution of the Ethereum ecosystem and a new frontier for innovation in the world of decentralized finance and beyond.
NOTE: CoinFund recently announced that it had partnered with CoinDesk Indices to launch CESR, a composite ether staking rate.
The loss in finality meant that blocks could have been tampered with, and while it isn’t supposed to affect end-user experiences, it did lead to some inconveniences for some applications.
The Ethereum blockchain suffered two brief episodes last week where blocks weren’t finalizing – an unwanted bout of instability that presents risks to the blockchain’s security but isn’t considered dire.
There was a lot of confusion in terms of what the delay in “finality” meant for the functionality of the blockchain, prompting discussions about security concerns. So, it bears unpacking a bit.
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The cause of the temporary loss of block finality remains under investigation, though Prysm, a provider of client software used to run a node on the blockchain, just released a new version, describing it as “the first full release following the recent mainnet issues,” with “critical fixes.”
When data blocks don’t finalize, there isn’t supposed to be any downtime or difference in end-user experience. That said, a loss in finality can lead to some security issues like reorgs.
Reorgs occur when a blockchain produces more than one block at the same time, usually because of a bug or an attack. This means that a validator node temporarily creates a new version of a blockchain, which makes it difficult to properly verify if a transaction has been successful, while the old version of the blockchain continues to exist.
However, snowball effects from this incident led to some end-user jolts. DYdX, a leading crypto exchange platform, had to temporarily pause deposits because of one of last week’s incidents, and Polygon’s zkEVM also experienced some delays with deposits.
The chart shows a spike in missed validator slots last week as the Ethereum blockchain temporarily stopped finalizing transactions. (Glassnode)
So how does finalization work?
In a proof-of-stake blockchain like Ethereum’s, validators first have to propose a block that contains transactions. Once those are proposed, other validators have to sign off on the block to permanently add it to the blockchain, which takes about 15 minutes. Once it is approved, or “attested,” by two-thirds of validators, the block eventually becomes finalized.
Thus, finality is the point where transactions on a blockchain are considered immutable. Finality is supposed to guarantee that transactions within a block cannot be altered.
If finality cannot be guaranteed, the blockchain enters an emergency state called the “inactivity leak,” where validators receive penalties for not reaching finalization. When the state is triggered, it acts as a way to incentive the blockchain to start finalizing again. The incident last week triggered Ethereum’s first-ever inactivity leak.
The Ethereum community has acknowledged that the current timeframe for blocks to be finalized is too long.
“Having a delay between a block’s proposal and finalization also creates an opportunity for short reorgs that an attacker could use to censor certain blocks or extract MEV,” the Ethereum website shared in a blog.
Ethereum co-founder Vitalik Buterin was writing about finality seven years ago, an indication of just how important an issue it is.
When the first loss of finality occurred on May 11, developers immediately shared it over Twitter, saying they were going to deploy extra help to figure out what was going on. After 25 minutes, the issue seemed to have been resolved and the chain resumed finalizing.
Roughly 24 hours later, the chain stopped finalizing again for about an hour, which caused outages for some infrastructure providers.
In the past, finalization has temporarily stopped because of bugs in client software used to run the blockchain. Ethereum has multiple clients in the event that there is a flaw or glitch in the software, so there are other options, and the activity on the blockchain can keep running.
How did this affect the applications?
Tim Beiko, protocol support lead at the Ethereum Foundation, told CoinDesk the incident is “definitely significant, but it’s not something where Ethereum’s security or soundness is at risk or compromised.”
“Within minutes, things were corrected and within like a day or two clients had software patches to make sure that this specific case did not come up again,” he said.
The developers are still looking to understand what caused the blockchain to stop finalizing, and are expected to discuss a post-mortem report in their upcoming Consensus Layer call.
Beiko told CoinDesk that the incident did not get to a point “where we began to test the very extreme fallbacks in the protocol to deal with this stuff.”
The incidents did affect several applications that run on top of the Ethereum blockchain.
Jordi Baylina, technical lead at Polygon, said that the finality stoppage meant that deposits onto the Polygon zkEVM chain were delayed, and since the chain relied on Infura, an infrastructure provider which also temporarily had an outage as a result of the loss in finality, issues for individuals using the zkEVM compounded.
“You need to wait for the finality in layer 1 deposit to be available in layer 2,” Balyina said. “So until you don’t have finality, you cannot use [the chain] or you have the risk of double spending in layer 2.”
DYdX paused its deposits temporarily today due to the lack of Ethereum finality and said it was “continuing to monitor and investigate this issue.”
Despite this, Ethereum developers emphasize that the network did not go down.
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“Today’s incident has been a great fire drill. It looks like two or three issues came together (as is often the case). The chain recovered gracefully and we discovered a few other issues that could be improved to make Ethereum more resilient,” tweeted Marius van der Wijden, a developer at the Ethereum Foundation.
High-frequency trading can be lucrative in newer markets like crypto, but HFT is not without its unique risks.
I had a nice conversation this week about high-frequency trading (HFT) in crypto markets. Born out of an idea I had to explore the space generally, a bout of fortuitous timing let me speak with someone who has engaged in it first hand.
I’ve always viewed HFT as a quantitative trading style that combines individual quantitative acumen with technical tools to take advantage of price discrepancies. Market makers in stocks and derivatives markets famously deploy the technique, leveraging coding ability and technical skill to capture trading opportunities first.
Often this involves arbitrage, where one asset has two different prices on separate exchanges. If, for instance, you can buy an asset for $10 on one exchange and nearly instantly sell it for $10.25 on another, you will have essentially secured a riskless profit. Doing so over and over can be highly profitable. Some of the more well-known names in HFT are Jump Trading, Citadel Securities, Virtu and Hudson River Trading.
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In popular culture, HFT has been displayed in Michael Lewis’ 2014 book “Flash Boys,” along with the 2018 film “The Hummingbird Project.” Both describe real and fictional, respectively, efforts to help HFT firms speed up their trading reaction times by fractions of a second by running a new, straighter fiber-optic line across the U.S. Today, the fastest firms use microwave or shortwave radio networks.
HFT certainly has its critics. Some write it off as outright cheating, arguing that access to faster throughput enables them to “front run” orders. Others say that it provides an unfair advantage to institutions over individuals. And others attribute rapid crashes in prices to HFT.
Use of HFT within crypto markets could amplify those critiques to symphonic levels. Still, the part of me that enjoys the marriage between markets and technology can’t help but look further.
My curiosity brought me to a conversation with Keone Hon, CEO of Monad Labs. His current firm’s mission centers around delivering a proof of chain (PoS) blockchain, which increases transaction throughput, and maintains compatibility with the Ethereum Virtual Machine (EVM). His prior role included a role as quantitative trading team lead at a separate HFT firm.
And while I spent the first half of this column discussing what I knew (or thought I knew), I’d like to spend the second half discussing what I learned. Here are some takeaways:
What HFT provides to crypto
Part of the edge is borne out of the nascency of crypto itself. Since there are fewer participants than there are over in traditional markets, price dislocations are more common – meaning larger profits. As more participants come in, those opportunities will become more scarce.
Buyers and sellers are not necessarily prepared to trade at the same time, so HFT firms bridge that time gap, buying from sellers and vice versa.They also compete with other traders to quote prices as tightly as possible.
“At the end of the day, professional automated trading is providing a service, although it may not sound that way,” Hon said.
The different HFT strategies in use
Candidly, this was my most selfish question. I enjoy all conversations around strategy and how individuals synthesize their own interpretation of data into a plan of action.
It was apparent that a class of strategies exists in HFT. One (mentioned previously) is arbitrage, whereby the trader is looking to take advantage of mispricings across different exchanges. Other strategies are alpha-driven, kicked off by “quantitative signals that come from measuring things happening on the order book,” Hon said.
What stood out to me during our strategy discussion was the need to not only be thoughtful in execution, but in position management and exchange evaluation. Part of the requirement of trading across exchanges involves maintaining inventory there, which brings with it additional elements of counterparty risk, particularly with centralized exchanges.
To that end, I got the sense that Hon feels that decentralized exchanges need to catch up to their centralized counterparts in terms of the user experience and quality of execution. My impression is that part of his current firm’s goal is to bridge the current gap between centralized and decentralized exchanges.
Regulation
How can you have a conversation on crypto and trading and not bring up regulation at least once? On that end, I suspect his response will surprise some. My impression is that Hon views sensible regulation as good, if for no other reason than it lets participants operate within a prescribed framework.
“It’s actually beneficial to make sure that exchanges are playing by the rules. It’s good to make sure that they have proof of reserves and assets that they claim,” Hon said.
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This is actually similar to what other crypto participants have told me. A clear set of rules, implemented without malice, would enable crypto participants to operate effectively, efficiently and… quickly.
Circle’s reserve fund has ditched Treasury bills that mature beyond May 31, rotating assets to cash and overnight repurchase agreements instead, a company spokesperson said.
Stablecoin issuer Circle Internet Financial is rebalancing the reserves backing the $30 billion USD Coin (USDC) as it braces for the risk of a U.S. government debt default.
The Circle Reserve Fund, managed by global investment management giant BlackRock, added $8.7 billion in overnight repurchase (repo) agreements to the portfolio as of May 16, according to the fund’s website. The so-called tri-party repo agreements involve banking giants such as BNP Paribas, Goldman Sachs, Barclays and Royal Bank of Canada.
Overnight repo transactions are effectively short-term collateralized loans. The borrower is selling a security – in this case, U.S. Treasurys – for cash, and agrees to buy back the collateral the next day for a slightly higher price. What’s really happening, though, is that big institutional investors with cash to spare are parking that with Wall Street dealers that need funding.
“While this plan has been underway for many months, the inclusion of these highly liquid assets also provides additional protection for the USDC reserve in the unlikely event of a U.S. debt default,” a Circle spokesperson emailed in a note.
Assets in the Circle Reserve Fund as of May 16 (BlackRock)
Circle is doing this as U.S. lawmakers are locked in discussions with President Joe Biden’s administration over raising the government’s ability to issue new debt, also known as the debt ceiling. Treasury Secretary Janet Yellen said that the Treasury Department is set to run out of cash by early June unless the debt limit is raised.
As part of the preparations, Circle’s fund ditched Treasurys that mature beyond the end of this month as of May 10, with rotating the assets into cash or government repo transactions instead, the Circle spokesperson said. The collateral for any such repo transactions exclude securities maturing within three days, the spokesperson added.
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“We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts,” Jeremy Allaire, chief executive officer of Circle, said last week in an interview with Politico.
The conversation was initiated to promote more decentralization within the dYdX ecosystem ahead of its v4 upgrade.
DYdX, the decentralized platform known for its perpetuals contracts, is now discussing the creation of more subDAOs to make management of the ecosystem even more decentralized.
A post from Fox Labs Digital, an Australian-based marketing agency, suggested divvying up oversight responsibilities to several smaller decentralized autonomous organizations (DAOs).
The discussion of going beyond the current two current subDAOS – one for dYdX’s grants program and the other for its operational activities – comes as the dYdX community is preparing to upgrade on the Cosmos blockchain to its fourth version (v4). The goal is to make dYdX “a fully decentralized version of the protocol,” according to a blog post.
Moreover, according to a different governance post by the dYdX Foundation, an independent not-for-profit organization aimed at fostering decentralized governance, the operations subDAO is set to expire on June 19. With the imminent launch of v4 and the expiration of its operations subDAO, the “dYdX ecosystem is approaching a critical juncture,” the foundation said.
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Fox Labs in the governance post said, “This is not just about shaping the future of dYdX but also about building a model for how a decentralized trading platform can operate effectively and inclusively.”
SubDAOs are groups of contributors within the dYdX DAO “that each work on core functional areas of the dYdX protocol and are ultimately accountable to the dYdX community,” per the dYdX Foundation.
Technical factors suggest ether’s bounce could pause at current levels.
After having declined more than 15% relative to bitcoin (BTC) in the first four months of the year, ether (ETH) over the past two weeks has narrowed its underperformance to 11%.
The recent move has come despite muted price movements for the two cryptos and amid low volume, with bitcoin trading action 25% below its 20-day moving average and ether 33% below. Bullish ETH investors likely may be anchored to its now persistently deflationary status, with token supplies contracting by 240,000 since September.
A look at relative rotation graphs (RRG) shows both bitcoin and ether currently trailing traditional finance in performance and momentum over the most recent 10 days.
Relative Rotation Graphs display the relative strength and momentum of assets to a central benchmark. In this instance, the S&P 500 serves as the benchmark, while the Nasdaq 100 and Russell 2000 also serve as analogs. The most recent RRG shows BTC and ETH falling into a lagging quadrant relative to all three indices.
For context, lagging assets within RRG’s are underperforming on the basis of both performance and momentum.
A technical look at the ETH/BTC chart shows momentum increasing alongside the improved performance, with the Relative Strength Index (RSI) up 13.6..
A look back at historical RSI levels implies that prices may stall however. Since 2015, the ETH/BTC RSI has fallen between 52 and 54 approximately 112 times, with average 30 day performance of just .002%. The data highlights bitcoin’s tendency to outperform ether historically. The ETH/BTC pair is currently trading 40% below its 2018 maximum of $0.11.
An additional 2% move higher would push ETH/BTC past the upper range of its Bollinger Bands, amplifying its recent ascent. Recent history would dictate however that the pair would be likely to revert back to its 20 day moving average of $0.07
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Grayscale announced last month that the SEC suggested FIL might be a security.
The U.S. Securities and Exchange Commission (SEC) asked Grayscale to withdraw its application to launch a Filecoin (FIL) Trust product, the asset manager revealed Wednesday.
Grayscale said in a press release that it had received a comment letter from the federal securities regulator saying FIL “meets the definition of a security.”
“The SEC staff requested that Grayscale seek withdrawal of the registration statement promptly,” Grayscale said. “Grayscale does not believe that FIL is a security under the federal securities laws and intends to respond promptly to the SEC staff with an explanation of the legal basis for Grayscale’s position. Grayscale cannot predict whether the SEC staff will be persuaded that Grayscale’s position is correct, and if not, whether it may become necessary for Grayscale to seek accommodations that would enable the Trust to register under the Investment Company Act of 1940 or, alternatively, seek dissolution of the Trust.”
Grayscale is a subsidiary of Digital Currency Group, CoinDesk’s parent company.
An SEC spokesperson declined to comment when asked if the agency could comment on FIL last month.
Grayscale said in a public filing in April that the SEC Divisions of Corporation Finance and Enforcement had reached out at the time “concerning [Grayscale’s] securities law analysis of FIL.
Grayscale “acknowledges that FIL may currently be a security, based on the facts as they exist today, or may in the future be found by the SEC or a federal court to be a security under the federal securities laws, notwithstanding [Grayscale’s] prior conclusion,” the company said at the time.
FIL’s price dropped nearly 3% (15 cents) on the news of the filing, before rebounding slightly and trading at $4.51 at press time, according to CoinGecko.
The back-and-forth reflects SEC staffers’ growing scrutiny of crypto tokens and their status under U.S. securities law. SEC Chair Gary Gensler has repeatedly said that most cryptocurrencies are securities, a stance that fundamentally differs with that of the crypto industry, including Grayscale.
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Issuers of securities have to register with the SEC and provide regular disclosures. The SEC has been cracking down on cryptocurrencies, especially projects which raised funds through initial coin offerings (ICOs), since 2017, forcing many of these projects to refund investors or shut down. Filecoin raised $200 million via an ICO.
Grayscale has previously made similar disclosures to its April Filecoin Trust disclosure related to its trust products for Stellar’s XLM, Zcash’s ZEC and Horizen’s ZEN.
The agreement offers Talos clients connectivity to Coinbase Prime for spot liquidity and custody services.
Talos, a crypto trading platform for institutional investors, is working with Coinbase Prime to expand access to digital assets for customers of both firms.
With rising demand from institutional investors for more secure and efficient trading platforms, the agreement offers Talos clients access to Coinbase Prime for spot liquidity and custody services, according to a press release. Coinbase Prime, which is typically used by institutional investors, is an integrated system that offers users offline storage and advanced trading.
The pact will also give Coinbase Prime clients access to Talos’s trading and connectivity products, according to the press release.
With institutional investors pushing further into crypto, demand for more sophisticated means of trading, investing and managing the digital asset has ramped up. Last week financial institutions T. Rowe Price, WisdomTree and Wellington Management joined layer 1 blockchain Avalanche’s Evergreen subnet to make execution and settlements more efficient. Last month, Nasdaq said it is aiming to debut its crypto custody services by the end of the second quarter.
“We’ve seen consistently growing demand, despite recent market conditions, for high-performance digital asset trading platforms as institutional investors continue to build for long-term participation in this emerging asset class,” Anton Katz, co-founder of Talos, told CoinDesk in an interview.
Katz added that unlike retail investors, institutional firms entering the space require trading platforms with a much higher standard for safety and reliability along with more efficient means of trading that matches what they’re accustomed to in the traditional financial (TradFi) world.
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Talos raised $105 million in a Series B funding round last May that included investments from U.S. financial services giants Citigroup (C), Wells Fargo (WFC) and BNY Mellon (BK). The crypto trading platform offers institutional investors a “full trade lifecycle” which includes liquidity aggregation, trading, analytics and settlement through a single point of access, according to the statement.
The two firms have formed a “strategic alliance, of which the ETP development is the initial aim.
Crypto-focused financial services firm Galaxy Digital (GLXY) has teamed up with asset manager DWS to develop a set of exchange-traded products (ETPs) for listing in Europe.
The two firms have formed a “strategic alliance,” according to an announcement on Wednesday, of which the ETP development is the initial aim.
The ETPs will give European investors cost-effective means of accessing digital asset investment through traditional brokerage accounts. Frankfurt-based DWS, which has 821 billion euros ($907 billion) in assets under management, will be Galaxy’s “exclusive ally” for crypto ETPs in Europe, the announcement said.
Galaxy has previously listed exchange-traded funds (ETFs) in Canada alongside CI Küresel Asset Management.
While the U.S. Securities and Exchange Commission (SEC)’s repeated rejection of applications to list spot bitcoin ETFs in the U.S. has been a source of ongoing frustration in the industry, similar products are now well established in Europe and Canada.
The significance of such investment vehicles lies in their providing institutional investors with an entry point to crypto investment while not requiring them to take direct control of the underlying assets, which could prove an impediment to adoption for such firms.
Edited by Parikshit Mishra.
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