Crypto Biz: Binance Connect goes dark, Prime Trust is bust and PayPal unveils Crypto Hub

August 18, 2023 Coin Telegraph

Binance

This week's Crypto Biz explores Binance Connect shutdown, BitGo's funding round, PayPal Crypto Hub, and other news.

It’s been another week of mixed developments in the crypto industry, with established players winding down operations while newcomers introduce new crypto features and services.

Binance’s buy-and-sell crypto arm was shut down on Aug.16, with the crypto exchange remaining under widespread regulatory scrutiny, affecting key partnerships for its operations worldwide. Crypto custodian Prime Trust filed for bankruptcy protection following months of uncertainty regarding the state of its finances.

Meanwhile, in better news, BitGo raised millions of dollars in a fundraising round backed by a new group of investors. Some fresh capital also flocked to ZetaChain, with the chain-agnostic protocol securing $27 million in an equity round backed by over ten investors.

Lastly, PayPal made another bold move in the space, announcing a hub for selected crypto users despite the still uncertain environment within the United States. On Aug. 16, the company announced a partnership with crypto hardware wallet manufacturer Ledger, allowing U.S. residents to buy Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC) with fewer steps.

Read more about these stories and get a glimpse into the constantly evolving crypto industry on this week’s Crypto Biz.

Binance Connect winds down operations

Binance Connect, the regulated buy-and-sell crypto arm of Binance exchange, was shut down on Aug. 16 after losing its card payments services provider. The platform launched in March 2022 as Bifinity to act as a fiat-to-crypto payments provider connecting crypto firms with the traditional finance system. At its launch, the platform supported 50 cryptocurrencies and fiat payment methods, including Visa and Mastercard. In the past months, Binance and its subsidiaries worldwide have fought to keep crypto on-ramps and off-ramps open amid growing regulatory scrutiny. The exchange is currently engaged in litigation with both the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission on allegations of operating an unlicensed exchange in the United States.

Dear Biswappers,

The Biswap team keeps abreast of the latest DeFi news and aims to inform you right away.

After a thorough consideration, @binance has made a difficult decision to disable @Binance_Connect on 15 August due to its provider closing the supporting card payments… pic.twitter.com/HcooyLn4sg
— Biswap (@Biswap_Dex) August 15, 2023

Crypto custodian Prime Trust files for Chapter 11 bankruptcy

Crypto custodian Prime Trust has filed for Chapter 11 bankruptcy protection in Delaware after facing a shortfall in customer funds. According to its filing, the company has between 25,000 to 50,000 creditors and estimated liabilities between $100 million to $500 million compared to $50 million to $100 million worth of assets. Prime Core Technologies, Prime Trust, Prime IRA and Prime Digital were listed as the entities filing for Chapter 11 relief. Prime Trust’s bankruptcy follows Nevada’s business regulator issuing the firm a cease and desist order in June, saying its financial condition was “critically deficient” and could not honor customer withdrawals.

BitGo raises $100 million after losing lawsuit against Galaxy

Cryptocurrency custody platform BitGo has raised fresh capital after facing a series of terminated deals involving firms such as Galaxy Digital. The crypto firm secured $100 million in a Series C financing round bringing its valuation to $1.75 billion. BitGo’s Series C funding reportedly featured entirely new investors based in the United States and Asia, with some backers coming from outside the cryptocurrency industry. According to BitGo, the newly raised funds will be deployed to make strategic acquisitions and expand its custody services, wallet and infrastructure solutions globally.

PayPal to roll out Cryptocurrencies Hub for select users

Payments giant PayPal updated its terms and conditions to introduce Cryptocurrencies Hub — a feature that allows users to hold and interact with Bitcoin and other cryptocurrencies in their PayPal account. According to the company, the Cryptocurrencies Hub service will allow for the sale and purchase of crypto. In addition, it will facilitate the payment for purchases via PayPal using the money stored after the sale of cryptocurrencies. The new hub was announced just a few days after the fintech giant unveiled its dollar-pegged stablecoin PayPal USD (PYUSD). According to PayPal, the Cryptocurrencies Hub will be crucial to convert between PYUSD and other crypto assets. The new feature will be available for selected users.

*PayPal Cryptocurrencies Hub as explained in terms and conditions. Source: PayPal*

Before you go: Spot Bitcoin ETF approved, but not in the US

In the latest episode of Cointelegraph’s The Market Report, analyst Marcel Pechman discusses the first spot Bitcoin exchange-traded fund (ETF) approved in the European Union, which went live on the Euronext Amsterdam exchange on Aug. 15, while the lack of regulatory clarity in the U.S. cryptocurrency market underscores the SEC’s reluctance to endorse a spot crypto ETF.

Crypto Biz is your weekly pulse of the business behind blockchain and crypto, delivered directly to your inbox every Thursday.

US court dismisses BitGo’s claims in $100M lawsuit against Galaxy Digital

June 12, 2023 Coin Telegraph

BitGo

Vice Chancellor J. Travis Laster of the Delaware Court of Chancery said Galaxy had a “clean termination right” to the acquisition of BitGo, which it announced in 2022.

The Delaware Court of Chancery in the United States has granted a motion from crypto investment firm Galaxy Digital largely dismissing digital asset custodian BitGo’s case following a dropped acquisition of the firm in 2022.

According to court documents filed on June 9, Vice Chancellor J. Travis Laster dismissed BitGo’s complaint against Galaxy Digital with prejudice. The decision followed Galaxy dropping its decision to acquire BitGo in August 2022 as part of a $1.2-billion deal after extensive efforts, citing a breach of contract. BitGo subsequently filed a lawsuit against Galaxy seeking $100 million in damages.

In his ruling, Laster said Galaxy had a “clean termination right” to the BitGo acquisition based in part on BitGo’s failure to deliver certain financial statements in its efforts to go public in the United States. A Galaxy spokesperson told Cointelegraph the company was “pleased” with the court’s decision to dismiss BitGo’s claims.

“There are no facts alleged that could make it reasonably conceivable that the exercise of the termination right was inconsistent with the implied covenant of good faith and fair dealing,” said Laster.

We’re pleased with the court’s decision to dismiss BitGo’s claims. Now is the time for all of us to work together and focus on the task at hand: Upgrading the global financial system in a manner that promotes innovation and protects investors and consumers alike. pic.twitter.com/xPrMP8AghW
— Galaxy (@galaxyhq) June 12, 2023

Operated by Mike Novogratz, Galaxy Digital announced its intention to acquire BitGo in May 2021 as part of its public offering in the United States. However, in 2022 the BitGo deal fell apart, and the company disclosed $77 million in exposure to failed crypto exchange FTX, which declared bankruptcy in November.

It’s unclear what legal avenues BitGo may have following the Delaware court decision. Cointelegraph reached out to BitGo’s legal counsel but did not receive a response at the time of publication.

Magazine: Get your money back: The weird world of crypto litigation

Crypto custodian BitGo signals intent to acquire Prime Trust

June 8, 2023 Coin Telegraph

BitGo

Should the deal go through, Prime Trust’s infrastructure will “map over 1:1” with BitGo’s services, and add another trust company and crypto IRA fund.

Wallet infrastructure provider and digital asset custodian BitGo have signed a non-binding letter of intent to acquire fintech infrastructure provider Prime Trust, according to an announcement on June 8.

The terms of the agreement were not disclosed. If the deal goes through, BitGo will acquire Prime Trust’s payment rails and cryptocurrency IRA fund and increase its wealth management offerings.

Prime Trust’s Nevada Trust Company will also join BitGo’s network of regulated trust companies in South Dakota, New York, Germany, and Switzerland. Prime Trust’s API infrastructure and exchange network will “map over 1:1” with BitGo services. According to the BitGo statement:

“This acquisition makes BitGo the first global digital asset company to provide a full suite of solutions for institutions and fintech platforms.”

The crypto custody market is evolving rapidly, with Ripple acquiring Swiss digital asset custody provider Metaco in May for $250 million. In addition, technological advances are impacting the market.

BitGo signed a term sheet to acquire the equity of Prime Core Technologies, Inc., the parent company of Prime Trust, bringing business continuity, long-term stability and regulated, secure solutions to valued Prime Trust clients.

This acquisition makes BitGo the first global… pic.twitter.com/CUcTUeCFKu
— BitGo (@BitGo) June 8, 2023

The acquisition comes as the United States Securities and Exchange Commission has proposed rule changes that would make it harder for crypto companies to act as custodians of their customers’ funds.

Prime Trust reportedly laid off a third of its staff in January. Later, it stepped in to hold Binance.US customer funds through a network of partner banks after the banking crisis in March. It was the center of a scandal in the U.S. state of Oregon last year when it was identified as the source of a $500,000 contribution to the state Democratic Party that later turned out to have come from FTX executive Nishad Singh.

Bitgo itself was almost acquired by Galaxy Digital for $1.2 billion last year, and filed suit against Galaxy after the deal was cancelled.

Magazine: ‘Account abstraction’ supercharges Ethereum wallets: Dummies guide

Securities token platform launches MPC wallet for institutions

May 3, 2023 Coin Telegraph

BitGo

The Web3 wallet allows institutions to control which employees are allowed to use the tokens held within it.

Securities token platform INX has launched a wallet with compliance features for institutions, according to a May 3 announcement. The new wallet was created in partnership with wallet infrastructure provider BitGo and uses multi-party computation (MPC) technology.

Exciting announcement!
INX now collaborates with @BitGo to enable institutional #investors to fully and confidently participate in the #security #tokens market and the greater digital economy: ⤵️https://t.co/AbpdS86lYk
— INX (@INX_Group) May 3, 2023

INX securities tokens exist on the Ethereum network and follow the ERC-1404 token standard. The standard was created in 2018 to allow for compliance-friendly Ethereum tokens. These tokens can only be transferred between users that have passed identity verification with a participating institution.

The new wallet allows institutions to comply with cybersecurity and custody standards in the financial industry when holding INX securities tokens. No single person is given access to the private key that controls a given account. Instead, the key is split into three or more “shards” that have to be combined to sign transactions, which is part of the MPC technology.

According to the announcement, the wallet also contains features to make employee access privileges easier to manage. Companies can task different employees with different roles, such as “viewers, spenders, approvers and administrators.” They can also segregate clients’ assets by splitting up funds into multiple wallets and giving “approver” privileges to each individual client. This allows institutions to give their clients more control over their individual accounts, the announcement said.

Lisa Jowett, head of platform sales at BitGo, said she thinks these new features will help make institutional investors more comfortable using Web3 technology:

“Our wallets can connect to and interact seamlessly with [the INX website] without compromising on security or reliability. This will unlock new possibilities for investors and serve as a gateway for institutional adoption of Web3.”

INX reached a major milestone on April 3 when it launched its first equity token from a public company, Greenbriar Capital. INX advisor Douglas Borthwick has argued that eventually “all assets will migrate to the blockchain.”

The company is registered with the Securities and Exchange Commission as a broker-dealer within the United States. Some industry experts have argued that the U.S. doesn’t have clear enough crypto regulations to allow most crypto exchanges to gain this designation.

Dfinity Foundation Launches Chain-Key Bitcoin, a Native Internet Computer BTC Derivative Token

April 3, 2023 Bitcoin.com

Bitgo Launches Storage and Tracking Solution for Bitcoin-Based Ordinal Inscriptions

March 31, 2023 Bitcoin.com

BitGo patches critical vulnerability first discovered by Fireblocks

March 17, 2023 Coin Telegraph

attackers

BitGo has patched a vulnerability that threatened to expose the private keys of retail and institutional users.

Cryptocurrency wallet BitGo has patched a critical vulnerability that could have exposed the private keys of retail and institutional users.

Cryptography research team Fireblocks identified the flaw and notified the BitGo team in December 2022. The vulnerability was related to BitGo Threshold Signature Scheme (TSS) wallets and had the potential to expose the private keys of exchanges, banks, businesses and users of the platform.

The Fireblocks team named the vulnerability the BitGo Zero Proof Vulnerability, which would allow potential attackers to extract a private key in under a minute using a small amount of JavaScript code. BitGo suspended the vulnerable service on Dec. 10 and released a patch in February 2023 that required client-side updates to the latest version by March 17.

The Fireblocks team outlined how it identified the exploit using a free BitGo account on mainnet. A missing part of mandatory zero-knowledge proofs in BitGo’s ECDSA TSS wallet protocol allowed the team to expose the private key through a simple attack.

Industry standard enterprise-grade cryptocurrency asset platforms make use of either multi-party-computation (MPC/TSS) or multi-signature technology to remove the possibility of a single point of attack. This is done by distributing a private key between multiple parties, to ensure security controls if one party is compromised.

Fireblocks was able to prove that internal or external attackers could gain access to a full private key through two possible means.

A compromised client-side user could initiate a transaction to acquire a portion of the private key held in BitGo’s system. BitGo would then perform the signing computation before sharing information that leaks the BitGo key shard.

“The attacker can now reconstruct the full private key, load it in an external wallet and withdraw the funds immediately or at a later stage.”

The second scenario considered an attack if BitGo was compromised. An attacker would wait for a customer to initiate a transaction, before replying with a malicious value. This is then used to sign the transaction with the customer’s key shard. The attacker can use the response to reveal the user’s key shard, before combining that with BitGo’s key shard to take control of the wallet.

Fireblocks notes that no attacks have been carried out by the identified vector, but warned users to consider creating new wallets and moving funds from ECDSA TSS BitGo wallets prior to the patch

Hacks of wallets have been commonplace across the cryptocurrency industry in recent years. In August 2022, over $8 million was drained from over 7000 Solana-based Slope wallets. Algorand network wallet service MyAlgo was also targeted by a wallet hack that saw over $9 million drained from various high-profile wallets.

Investors might have avoided FTX if the SEC had addressed Bitcoin ETFs, says BitGo CEO

March 9, 2023 Coin Telegraph

BitGo

According to Mike Belshe, the U.S. SEC’s reluctance to address a “basic” regulatory issue like the issuance of a BTC ETF could have paved the way for FTX's alleged illicit activities.

The collapse of crypto exchange FTX and other bearish events in the space were at the center of discussions among lawmakers and witnesses at the inaugural hearing of the United States House Committee on Financial Services’ Subcommittee on Digital Assets, Financial Technology and Inclusion.

Addressing lawmakers at the March 9 hearing, BitGo co-founder and CEO Mike Belshe criticized the U.S. Securities and Exchange Commission, or SEC, for enforcement actions against crypto firms “trying to do it right” — i.e. communicating with regulators and pursuing a path to operate in the country. He cited BitGo’s experience going through the process of approaching the SEC in 2018 seeking a regulatory path forward on the question of how the firm should custody assets, only to wait more than 4 years for a definitive answer.

According to Belshe, the SEC’s reluctance to address a “basic” regulatory issue like the issuance of a Bitcoin (BTC) exchange-traded fund could have seemingly opened the door for bad actors like Sam Bankman-Fried to operate FTX as he did. The former CEO faces charges from the SEC, Commodity Futures Trading Commission, and federal prosecutors related to transferring user funds between the exchange and Alameda Research.

“You do have to wonder if we couldn’t have avoided the massive amounts of money that flowed to FTX if the basic principle of a Bitcoin ETF had been provided and approved by the SEC,” said Belshe. “There had been 25+ valid applications — some from Invesco and other reputable firms that have done ETFs for many years in the past.”

*BitGo co-founder and CEO Mike Belshe addressing the Subcommittee on Digital Assets, Financial Technology and Inclusion on March 9*

Much of the discussion among lawmakers and industry experts at the hearing centered around which federal agencies could regulate certain crypto assets should Congress pass related legislation. Some Republican representatives seemed to be particularly critical of the Biden administration’s approach to crypto, as evidenced in the hearing’s title calling its actions an “attack on the digital asset ecosystem”.

“This report summarizes President Biden’s political plan to lawlessly abuse the administrative state to push American crypto firms and their United States customers into offshore, unregulated, opaque and unsafe markets,” said Representative Tom Emmer, citing a Jan. 27 report from the White House on mitigating the risks associated with crypto. “This administration is weaponizing the banking sector to debank legal crypto activity here in the U.S., using scare tactics to run an entire industry out of the country.”

#HappeningNow: Chairman @RepFrenchHill convenes the Subcommittee on Digital Assets, Financial Technology & Inclusion for a hearing on the Biden Administration’s attack on the digital asset ecosystem.

Tune In https://t.co/FGQaA37IYN pic.twitter.com/DqBA6O5rcc
— Financial Services GOP (@FinancialCmte) March 9, 2023

Other witnesses at the hearing were more critical of crypto as a whole rather than focusing on blaming any single agency, political party, or presidential administration. Representative Brad Sherman, a well known critic of the space, referred to crypto as a “scourge” in the economic system. Lee Reiners, the policy director of the Duke Financial Economics Center, claimed though FTX was one “bad apple”, the entire crypto industry was “rotten”.

“Crypto and the unique nature of crypto was what fueled FTX’s rise, and it’s what made FTX collapse in the blink of an eye,” said Reiners.

The House subcommittee hearing was the first in the new session of Congress to address issues related to the crypto market and the collapse of FTX since December 2022. Lawmakers with the Senate Banking Committee held their own hearing exploring the impact of the 'crypto crash' in February.

Alameda tried to redeem 3,000 wBTC days before bankruptcy: BitGo CEO

December 15, 2022 Coin Telegraph

Alameda Research

The CEO of Bitgo stated that the Alameda representative failed the security verification process required to convert Wrapped BTC into BTC.

Mike Belshe, the CEO of digital asset custodian BitGo has confirmed that Alameda Research attempted to redeem 3,000 Wrapped Bitcoin (wBTC) in the days before FTX’s bankruptcy filing on Nov. 11.

During a Dec. 14 Twitter Spaces hosted by decentralized finance (DeFi) researcher Chris Blec, Belshe confirmed the firm knocked back the redemption request because the unknown Alameda representative involved didn’t pass Bitgo’s security verification process and seemed unfamiliar with how the wrapped Bitcoin burning process worked.

Full convo here. This part starts at 1:09:30. https://t.co/0KQg6bzd8k
— Chris Blec (@ChrisBlec) December 14, 2022

“[The security details] didn't match the process. So we held it up and we said no, no, no, no. This is not what the burn looks like. And we need to know who this person was.”

“So we held it and while we were holding it, waiting for a response on those issues [Alameda] went bankrupt and of course, once they went bankrupt, everything halted,” Belshe added.

The Bitgo CEO also said that Alameda’s 3,000 BTC mint request remains “stuck” on the platform’s dashboard, adding that the firm would most likely leave the tokens where they are until they’re dealt with by the trustees taking on Alameda's bankruptcy case.

*Alameda’s failed mint transaction request of 3,000 wBTC in exchange for 3000 BTC. Source: wBTC Network Dashboard.*

Alameda’s attempt to unwrap the 3,000 wBTC was also confirmed on the Ethereum transaction aggregator Etherscan.

While this would have ordinarily triggered the redemption of BTC, Bitgo has a security mechanism set in place before the conversion takes place, which is what Alameda failed.

It is not understood what the motive was for attempting to redeem the $50 million worth of wBTC, but it is understood that FTX executives were attempting to raise funds from a variety of sources to stave off bankruptcy up until the last minute.

Analysis from Arkham Intelligence on Nov. 25 found that Alameda pulled $204 million from eight different addresses from FTX.US five days before its parent firm eventually filed for Chapter 11.

wBTC is a tokenized version of BTC, which can be redeemed for BTC when it is sent to a burn address, triggeringthe release of BTC. The conversion is made at a 1:1 ratio.

The tokenization of wrapped Bitcoin enables Bitcoin holders to interact with Ethereum-based smart contracts and decentralized applications.

Bitgo co-developed wBTC in 2019 alongside blockchain interoperability protocol Ren and multi-chain liquidity platform Kyber. wBTC is also managed by the decentralized autonomous organization wBTC DAO, which comprises over 30 members.

The wBTC dashboard currently shows that BitGo now holds 202,255 BTC in custody against 199,238 wBTC in circulation, amounting to an overcollateralization rate of 101.51%.

Bitgo Reveals Wrapped Dogecoin Token Built on Ethereum

November 6, 2022 Bitcoin.com

BitGo

Binance Connect winds down operations

Crypto custodian Prime Trust files for Chapter 11 bankruptcy

BitGo raises $100 million after losing lawsuit against Galaxy

PayPal to roll out Cryptocurrencies Hub for select users

Before you go: Spot Bitcoin ETF approved, but not in the US

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