The Singapore firm is one of the largest bitcoin miners in the world with 16.2 EH/s of hashrate.
Bitcoin miner Bitdeer listed today on the Nasdaq after several delays, to lukewarm reception, as the shares of the miner, under the ticker BTDR , lost almost 30% of their value, trading around $6.81 at the time of publication.
The stock was halted shortly after market open, several times, for volatility. Other crypto mining stocks saw single-digit upticks in their share value at the same time frame.
Its merger with a special-purpose acquisition vehicle (SPAC), called Blue Safari Group Acquisition Corp, was approved on Tuesday.
The Singapore-based firm is one of the largest miners in the world, shows a March prospectus filed with the U.S. Securities and Exchange Commission. It has six mining sites across Washington state, Texas, Tennessee and Norway, with a total energy capacity of 775 megawatts (MW) as of the end of 2022, about less than what it had estimated in February 2022. Its hashrate or computing power at the end of January stood at a total of 16.2 exahash per second (EH/s), second only to bankrupt Core Scientific (CORZ) and higher than Riot Platforms (RIOT) and Marathon Digital Holdings (MARA).
About one quarter of that is used for self-mining, meaning it keeps the bitcoin rewards, whereas the rest is given out for cloud mining, meaning customers rents its machines and reap the rewards.
Bitdeer was born out of the world’s largest rig manufacturer, Bitmain, when after a spat between the two co-founders, one of them left and took Bitdeer. Another cloud mining firm also affiliated with Bitmain, BitFuFu, is also in the process of going public via SPAC, but has delayed the listing.
Bitdeer’s, along with other bitcoin miners, financial performance deteriorated in 2022, in part due to worsening market conditions. The firm reported revenues of $330.3 million, and a loss of $62.4 million for 2022, compared with $394.7 million in revenue and a profit of $82.6 million the year before, according to the prospectus filing.
The miner is going public at a better time than last year as market conditions have improved, with bitcoin passing the $30,000 mark and mining equities in many cases outperforming the digital asset in percentage growth. In the future the “market will begin to shift from not only focusing on operators with the biggest scale, but also operators with the best unit economics,” said investment bank Stifel Nicolaus’s analyst Bill Papanastasiou.
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The Securities and Exchange Commission is confirming crypto industry worries that, yes, the proposal last year to widen its view of securities exchanges is meant to fold in DeFi.
The U.S. Securities and Exchange Commission (SEC) may be coming for decentralized finance (DeFi) as it considers reopening a proposal from last year that would now explicitly target platforms for those crypto transactions as exchanges that need to be regulated.
The SEC proposed expanding the definition of the word “exchange” in January 2022 to capture a broader swath of trading activity in the U.S. At the time, the agency said in its proposed rulemaking that certain entities engaging in trading activity were not regulated as exchanges, creating a “regulatory disparity.”
The securities agency read last year’s comment letters from the crypto industry calling the initial proposal an overreaching power grab that failed to provide enough clarity about its meaning to be legitimate. The commission is going to vote Friday on what amounts to a response to that criticism. If approved, the updated proposal would use more direct language that includes DeFi in the widening definition of regulated exchanges, and it will detail its estimates on how much that change is expected to cost the industry.
The specific changes will be published after the meeting ends with a vote later today.
SEC Chair Gary Gensler contends that most crypto platforms are already operating as unregistered securities exchanges, with or without the latest tweaks to the definition of what it means to be an exchange. But he and the commission are poised to “reiterate the applicability of existing rules to platforms that trade crypto asset securities, including so-called ‘DeFi’ systems,” according to an SEC fact sheet outlining the changes.
“Calling yourself a DeFi platform is not an excuse to defy the securities laws,” he said in remarks prepared ahead of the meeting.
SEC officials, speaking to reporters ahead of Friday’s meeting, said the reopening and additional information came after a number of market participants asked for more information about the proposed amendments and how exactly they would be applied to crypto assets and DeFi.
The agency isn’t looking to actually define DeFi in the rule, according to SEC officials, but will evaluate each situation by how the activity is being handled, including whether there’s an intermediary and exactly what service that intermediary is providing.
In the prepared remarks, Gensler reiterated his view that “the vast majority of crypto tokens are securities” and that crypto trading platforms already meet existing requirements for securities exchanges.
“These platforms match orders of multiple buyers and sellers of crypto securities using established, non-discretionary methods,” he said. “That’s the definition of an exchange – and today, most crypto trading platforms meet it. That’s the case regardless of whether they call themselves centralized or decentralized.”
Industry pushback
The crypto industry has long advocated for U.S. rules that can bring certainty to how the companies and activities need to operate, though prominent crypto executives and their lobbyists have also said that the SEC’s position that they need to register and follow existing securities laws won’t work for this industry. The SEC has broadly chosen against a tailored approach to the cryptocurrency sector that would acknowledge how it differs from the rest of finance, with Gensler routinely arguing that longstanding securities laws are sufficient.
The SEC had pushed this exchange-definition rule and other proposals last year that – without detailing its intentions with crypto specifically – had suggested that the agency meant to formalize its reach into the digital assets sector.
Later, the agency became more explicit about having its eyes on digital assets, when it issued another proposal in February that could bar investment advisers from keeping assets at crypto firms.
With each proposed rule, the SEC’s walls are closing in on crypto businesses that insist there’s no path for them into regulated finance.
The agency received almost 400 comment letters on this week’s revisited proposal and disclosed 35 staff meetings and calls with Wall Street lobbyists, industry self-regulatory organizations, the Bank of England and others regarding the effort. A reopened comment period would give crypto lawyers and lobbyists another 30 days to argue against the rule before the agency will review those responses and decide whether to approve a final rule.
Even when the new exchange definition didn’t name crypto explicitly, the industry opposed it with the assumption that it had digital assets platforms in mind.
“The proposal fails to adapt to – let alone acknowledge – the fundamentally new ways in which individuals can conduct asset exchanges using DeFi protocols,” the Blockchain Association and the DeFi Education Fund argued in a 2022 letter to the SEC. “Instead, it would improperly apply regulations designed for intermediating exchanges like the New York Stock Exchange to software or software developers.”
Rep. Patrick McHenry (R-N.C.), the chairman of the House Financial Services Committee that oversees the SEC, wrote a letter to Gensler with another committee member that said the agency seemed to be trying “to expand the SEC’s jurisdiction beyond its existing statutory authority to regulate market participants in the digital asset ecosystem, including in decentralized finance”
Circle Internet Financial sought the chance to ask for more specific rules for crypto.
“In view of the unique architecture of digital asset markets, we suggest that the commission would benefit the most from a wide-ranging concept release focused on digital assets markets and how best to achieve its policy goals in light of the unique architecture of such markets,” the company’s comment letter suggested.
But some were glad last year at the possibility crypto could be folded into this SEC oversight.
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“The cryptocurrency industry is rapidly expanding with some industry lobbyists insisting that their offerings and platforms fall outside the securities laws and regulations,” Better Markets, a Washington-based group advocating for tougher protections in the financial system, wrote in a comment letter last year. “But clearly, the commission must apply securities regulation equally to all securities regardless of how novel, ‘innovative,’ popular, or profitable such offerings may be.”
It’s been a tough month for DeFi in U.S. policy circles, after the U.S. Treasury Department also made clear last week that DeFi services should be subject to anti-money-laundering laws, saying the platforms have been used by criminals and for terrorist financing.
Celsius Network contacted 130 interested parties and signed confidentiality agreements with 40, before choosing NovaWulf.
Digital asset investment firm NovaWulf is poised to take over all assets belonging to bankrupt crypto lender Celsius Network and roll them into a new company, once its creditors have been paid out.
NovaWulf will manage the new company for five years, which will have a new name and a new board of directors, and will be traded through a fairly untested method of putting tokenized equity on blockchain. The five-year management term can be renewed. The board of directors will be chosen by NovaWulf and the official committee of creditors, which represents their interests in the bankruptcy. The plan could take effect as soon as June 30.
NovaWulf has committed $45 million in the transaction, but the Celsius assets it will manage could be worth as much as $2 billion, according to Marc D. Puntus, co-head of Centerview Partners, the investment banker working with Celsius during the bankruptcy case. The assets in question include Celsius’s mining unit, its loan portfolio, staked cryptocurrency, and other alternative investments, according to court filings.
However, the team will have a big task ahead of it – turning around one of the most spectacular collapses in crypto history. The leadership sees the bankruptcy process as a way to turn over a new leaf, and then some.
“What I’m really most excited about is the flexibility to be in a position to play offense, when you have an entire industry that’s playing defense,” given that major crypto firms are either in bankruptcy or facing regulatory scrutiny, said NovaWulf co-founder and managing partner Jason New.
Celsius contacted 130 interested parties and signed non-disclosure agreements with 40, before choosing NovaWulf, according to filings.
NovaWulf is related to TeraWulf (WULF), a publicly traded mining company. The two firms share their two co-founders, who don’t have any formal executive roles at NovaWuf, only in the miner – Nazar Khan, who is also the miner’s chief operating officer and chief technology officer, and CEO Paul Prager. NovaWulf’s team has had experience with complicated bankruptcies such as Lehman Brothers.
Tokenized equity
The tokenized equity of the new company will be traded on-chain and outside of stock exchanges. It will however have to follow SEC disclosure rules, which should make its workings more transparent. Just a month before Celsius filed for Chapter 11, industry commentators were disapproving of its opacity.
The equity tokens will be sold on the Provenance Blockchain, according to a presentation filed with the bankruptcy court. Figure Technologies will also provide infrastructure for the tokenized securities.
General earn creditors, with claims below $5,000, will see 70% recovery of their claims in liquidy crypto, the presentation said. Up to 100% of the rest of the assets, minus what is needed to run the new company, will be dispersed to earn creditors with claims over $5,000, who will also receive tokenized securities of the new company.
How Celsius creditors’ claims will be treated in the current bankruptcy plan, excerpt from presentation filed with the court on March 1.
Total overhaul
Taking on Celsius’ new chapter requires a certain amount of house cleaning: The new firm will have a new name and none of the pre-bankruptcy leaders will be involved, said NovaWulf’s New.
Celsius’s leadership has been slammed for its risky management online and offline, including in a report from a court-appointed examiner after the bankruptcy.
The mining business was, in former CEO and founder Alex Mashinsky’s view, a way to increase yield on customer deposits, according to the report. By June 2022, Celsius had lent out $579 million in Celsius Mining, its wholly owned subsidiary that was established in 2020, and forwarded another $70 million loan shortly before the bankruptcy, the report said.
Celsius was also using stablecoins bought with user funds as collateral to fund “the entire mining asset,” said CEO Chris Ferraro in a Slack message according to the examiners’ report. The company was doing the same to prop up other parts of its business.
By spring of 2022, some of the company’s senior management thought that an initial public offering (IPO) of the mining business could be used to plug a $1.1 billion hole in its balance sheet, along with the sale of other “non-balance sheet assets.”
But the value of the mining unit dropped from $2 billion to $2.9 billion in August of 2021, to $500 to $700 million at the time of the bankruptcy, meaning even if an IPO or sale had gone through, it likely wouldn’t have sufficed to plug in the balance sheet hole.
Risk management and an overreliance on third parties, known as hosting firms, formed Celsius’s mining’s Achilles heel.
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The new management will look to vertically integrate the mining business, which now counts about 120,000 machines. At least initially, they will be looking for hosting agreements, but a focus will be to set up their own hosting capacity down the line to better control risks and costs.
Asked whether the new firm will be working with TeraWulf for hosting, New said it wouldn’t.
DWF Labs made headlines with more than $200 million of investments in crypto projects such as CryptoGPT or Synthetix. A closer examination reveals that many of their deals aren’t typical venture capital investments, but packaged with market making services, pledges to boost trading volume or even selling tokens directly for a project’s treasury. Industry experts claim red flags and conflict of interest, but the firm says it’s all a misunderstanding.
The giants of crypto venture capital are mostly a well-known group of firms that’ve been around for years, companies like A16Z, Paradigm, Pantera Capital and Digital Currency Group (CoinDesk’s parent).
So the quick and loud emergence of a firm called DWF Labs as a seemingly large player in the space over the past few months caught many by surprise. They announced through press releases and media organizations like CoinDesk and The Block a slew of investments in projects including $40 million for internet alternative provider Tomi, $40 million for artificial intelligence-related token Fetch.AI and $10 million in AI-focused crypto data project CryptoGPT.
But a closer examination reveals DWF, whose founders made their money as crypto high-frequency traders, isn’t exactly a venture capital firm – not always, at least.
While the recent slew of headlines refer to DWF’s partnerships with crypto projects as ‘investments,’ DWF Labs actually functions more similarly to an over-the-counter (OTC) trading desk. The company typically approaches a crypto project with a token, and offers to buy millions worth of the token at a discount to market value, according to conversations with several crypto projects that have worked with DWF.
But DWF Labs says it’s all a misunderstanding. “There might be some questions on the use of the word investment,” said DWF Labs Partner Stefano Virgilli. “When we use the word ‘investment’ – to us the most important thing is that if we’re purchasing the tokens and they’re using the funds to further develop, that’s an investment,” he added.
The controversy
Investments in crypto projects typically follow a venture capital model. Projects tap venture firms for capital via funding rounds (i.e. pre-seed, seed, Series A, etc.) and, in turn, the investors receive a portion of the project’s equity. In most cases, particularly in early stage investments where a project has not yet launched a token, investors will receive a Simple Agreement for Future Tokens (SAFT), a contract that outlines the tokens allocated to the investor if the project launches a token in the future.
DWF Labs’ investments are more ad hoc in nature and the company primarily selects for projects that have already launched a token.
While DWF Labs refers to itself as “a global web3 venture capital and market maker” or “multi-stage web3 investment firm” in press releases, the deals are often presented as “strategic partnerships” that can include token acquisitions, market making services, pledges to boost a token’s liquidity and trading volume, and additional support with marketing and media presence.
Even helping projects’ treasuries to sell their token holdings, according to the press release the firm distributed about its launch in September.
In the post, the firm said that “DWF Labs invests in digital asset companies and supports existing markets, enabling digital asset companies to sell their tokens for up-front capital without adverse price impact,” adding that “DWF Labs buys tokens with its own funds, allowing its corporate customers to sell tokens quickly.”
It is quite common in the crypto industry for market making firms to have venture capital arms. Jump Crypto and Wintermute, two heavyweights in the crypto market-making sector, both began as trading firms. But both have since expanded into cutting venture checks for projects, and even building their own pieces of core infrastructure (Jump has backed the Wormhole cross-chain bridge and Wintermute has launched its own decentralized exchange).
However, the industry standard is that these contracts should be separated. Even though the lines between the two divisions can be blurred sometimes by the market makers, some industry observers have grown concerned about DWF’s recent activity and seemingly packaging different services under partnerships.
“It’s a massive conflict of interest,” Walter Teng, research firm Fundstrat’s vice president of digital assets, told CoinDesk. “If you invest, you want the token’s price to go up. If you market make, you can manipulate the price to go up by spoofing.”
“All of their ‘investments’ are poorly disguised agency OTC (over-the-counter) trades,” a market making firm’s executive told CoinDesk, who asked not to be named due to company policy. “They make a big announcement about ‘partnerships, investments’ or some other nonsense, but in reality it is a way for token projects to sell their treasury without announcing that they are selling their treasury.”
DWF’s managing partner Andrei Grachev defended the firm’s token maneuvers in a recent tweet, calling it “dumb” if a market maker (MM) leaves all the acquired or borrowed assets in a wallet, because an “MM should create markets, provide depth, improve order execution instead of doing nothing and waiting when the market is skyrocketing to execute its call options.”
DWF Labs’ strategy
DWF Labs launched in September, as an investment-focused arm of Digital Wave Finance, a top high-frequency trading firm that trades spot and derivatives on over 40 exchanges, according to the firm’s press release.
Grachev told CoinDesk that DWF Labs’ funding comes from the money earned from profits of the high-frequency trading business. Grachev denied that the firm has received any funding from Russia, a rumor circling within the crypto industry.
Grachev said that the firm has multiple types of investments, some with token lock-ups, others without vesting period, and focuses on projects with tokens. “We prefer to have tokens but we also have several equity deals,” said. “But frankly with equity…it is not our strong side,” he said.
While he said that DWF Labs “usually do not include market making deals in our venture side,” later, he admitted that “we have pure investments without market making, we have market making [agreements] without investment, and we have [them] combined.”
“As a market maker, of course we support our portfolio. If we invest, we will provide much more liquidity to the project compared to if we don’t invest,” Grachev said.
When asked about DWF’s investment strategy and due diligence, Grachev talked about focusing on five sectors – TradFi, DeFi, GameFi, CEXs and artificial intelligence – and aiming to “have stakes in all major chains (…) in order to have access to their ecosystems.” The firm looks for projects with “life and traction,” he said, checking social media posts and what exchanges their token is listed on.
“If a project is listed on BitFinex, Coinbase or Binance, then the project is proven and good because these exchanges have very strict due diligence and very strict policies of listing,” he added.
Grachev also said DWF doesn’t usually participate in specific venture rounds. “We just approach them,” he says.
CoinDesk viewed a series of messages between DWF Labs and a crypto project that showed a member of the DWF Labs team offering to invest in the project and provide free market-making services. DWF told the project it could invest via a direct OTC purchase of liquid tokens from the project’s treasury, or with a lock-up period and market-making services.
Messages from the market maker to another project showed that DWF offered to buy tokens in daily tranches without any lock-up period at a discount or in one installment with a one-year lock-up at a steeper discount. According to the message, DWF promised to help list the token on Korean exchanges including Binance Korea which the firm has “good relationship” with, create options trading and “build narrative” leveraging DWF’s team and media presence.
There were several past announcements when DWF mashed investments and market-making deals.
One instance was its strategic partnership announcement with derivatives trading platform Synthetix. According to a press release on March 16, the firm said it acquired $15 million of the project’s native token SNX “aimed at boosting liquidity and market making,” adding a quote from Grachev that “we are thrilled to invest in Synthetix.”
Blockchain data shows that DFW’s wallet – labeled by crypto intelligence firm Nansen – received 5.3 millions of SNX directly from Synthetix’s treasury wallet between March 14 and March 16. Then, the firm transferred all tokens to Binance in multiple transactions between March 16 and 20.
Transactions between DWF Labs and Synthetix treasury. (Nansen)
In November, DWF announced a $10 million investment in the TON ecosystem. The firm’s press release said that the “strategic partnership” with the project extends to “an investment, token development, market creation and exchange listing.” The partnership also includes “50 seed investments scheduled over the next 12 months,” doubling the TON token’s trading volume in the first three months of the partnership, and developing an OTC market “to let buyers and sellers complete large transactions.”
Another case is the firm’s investment into web3 influencer platform So-Col. According to a story by crypto-focused publication The Block and cited on DWF’s website, DWF invested $1.5 million in “a round” by purchasing So-Col’s native token SIMP in February. Irene Zhao, So-Col’s founder, said that the tokens have a one-year vesting period ending in February 2024. The post does not mention other services besides investing.
However, Nansen’s blockchain data on the Ethereum blockchain shows that DWF’s crypto wallet received 3.3 million SIMP tokens between March 6 and March 24. Within the same period, DWF sent some 2.6 million tokens to KuCoin exchange, then transferred the rest to an unknown wallet on March 30. After the announcement on March 28, SIMP almost doubled from around 1.7 cents in a week, then started to plummet on April 4 towards 1 cent, per CoinGecko data.
CoinDesk reviewed Telegram messages of a So-Col representative saying that they decided to work with DWF Labs because besides serving as a market maker DWF also invested in the project directly helping to extend the startup’s runway.
Sending tokens to exchanges
Grachev said that DWF Labs keeps most of its funds and investments on centralized exchanges (CEXs) and transferring tokens to an exchange does not indicate the company will sell.
“We keep all of our inventory, almost all of our inventory, not only our investments but our own funds on exchanges,” he said.
However, keeping supposedly long-term investments on exchanges is a worrying sign for some industry experts, hidden from savvy blockchain analysts and traders whether DWF sells tokens or uses them for market making purposes.
“It’s a red flag,” a founder, who asked to remain anonymous, of a crypto analytics firm with former market making experience told CoinDesk. “They [DWF Labs] market them as an investment, and then claim to do ‘market making’ so they can keep funds on exchanges and just dump.”
It’s hard to opine on where a firm like DWF should draw the line between VC and market making. Perhaps, a page from the TradFi banking playbook could work. In that realm, investment banking and trading/research is separated by a so-called Chinese wall. Where that line might need to be drawn for crypto investment firms is unclear.
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In the interview, Grachev admits his “biggest mistake” was not properly explaining his firm’s operating philosophy and investment process. “We need to be more open. I want [the community] to know how we work and then let people decide who is right and who is not right,” he said.
