Institutional Crypto Lender Genesis Trading Halts Withdrawals, Citing 3AC and FTX Collapse

November 16, 2022 The Daily Hodl

Moola Market attacker returns most of $9M looted for $500K bounty

October 19, 2022 Coin Telegraph

attacker

The attacker has scored about a half-million dollar “bug bounty” after choosing to return a majority of the cryptocurrency they exploited from the Celo-based lending protocol.

An attacker has returned just over 93% of the more than $9 million worth of cryptocurrencies they exploited from the Celo (CELO) blockchain-based decentralized finance (DeFi) lending protocol Moola Market.

At around 6PM UTC on Oct. 18 the Moola Market team tweeted it was investigating an incident and had paused all activity, adding it had contacted authorities and offered a bug bounty to the exploiter if funds were returned within 24 hours.

Analysis of the exploit by Web3 security company Hacken shows the attacker manipulated the price of the protocols’ low-liquidity native MOO token by initially purchasing around $45,000 worth and depositing it as collateral to borrow CELO.

The borrowed CELO, along with further CELO provided by the attacker, was then used as collateral to borrow more MOO, driving up the token’s price. The attacker continued repeating this until the MOO token price had increased by 6,400%.

With the inflated token price, the attacker was able to borrow $6.6 million worth of CELO, $1.2 million of MOO, along with $740,000 of Cello Euros (cEUR) and $644,000 Celo Dollars (cUSD) all worth multiples more than their initial posted collateral resulting in the protocol's loss of around $9.1 million.

Five hours after the initial confirmation of the exploit, Moola Market tweeted it had received just over 93% of the funds exploited, with the attacker seemingly keeping the rest making around $500,000 as a bug bounty.

Following today's incident, 93.1% of funds have been returned to the Moola governance multi-sig. We have continued to pause all activity on Moola, and will follow up with the community about next steps, and to safely restart operations of the Moola protocol. (1/2) https://t.co/UsdN44X70X
— Moola Market (@Moola_Market) October 18, 2022

Moola Market did not immediately respond to Cointelegraph’s request for comment.

The attack draws similarities to the $117 million exploit suffered by Mango Markets on Oct. 11 in which Avraham Eisenberg and his team manipulated the price of the Solana (SOL)-based DeFi protocols’ native token to borrow cryptocurrencies with an undercollateralized backing. Eisenberg negotiated to keep $47 million as a “bounty.”

Multi-chain cryptocurrency wallet BitKeep also suffered an exploit late on Oct. 17 with an attacker making off with $1 million worth of Binance Coin (BNB) through a service used to swap tokens, BitKeep says it will fully reimburse any affected users.

The attacks are the latest in a series of exploits to have taken place in October which has also shaped up to be the biggest month ever for hacking activity with the total hacked value reaching around $718 million up until Oct. 12 according to analytics firm Chanalysis.

Celsius founder reportedly withdrew $10M before bankruptcy filing: FT

October 3, 2022 Coin Telegraph

Celsius founder reportedly withdrew M before bankruptcy filing: FT

Alex Mashinsky

The details of the withdrawal will reportedly be part of upcoming court filings, and it's possible the founder and former CEO of the crypto platform could be forced to pay it back.

Celsius Network founder and former CEO Alex Mashinsky allegedly withdrew $10 million from the crypto lending platform just weeks before the company froze customer funds and declared bankruptcy.

The withdrawal was cited by sources from the Financial Times who said Mashinsky withdrew the funds in “mid to late May” prior to the Jun. 12 pause on all withdraws.

Celsius was a popular crypto-lending platform with 1.7 million customers and $25 billion in assets under management but the prevailing poor crypto market conditions eventually led the company to a $2.85 billion gap in its balance sheet.

This led Celsius to pause customer withdraws in June before filing for chapter 11 bankruptcy in July with Mashinksy attempting to restructure and revive the company to be based around crypto custody services.

The withdrawal raises questions about whether Mashinsky knew ahead of time that the company would be freezing customer funds and withdrawals.

However, a spokesperson for Celsius told FT that the founder withdrew cryptocurrency at the time to pay state and federal taxes.

“In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totaled what he withdrew in May,” the spokesperson said, adding Mashinsky and his family still had $44 million worth of crypto frozen on the platform.

Meanwhile, sources told the FT the withdrawal was pre-planned in line with Mashinsky’s estate planning.

Roughly $8 million worth of assets withdrawn were used to pay income taxes arising from the yield the assets produced, and the remaining $2 million was made up of the platform's native token CEL.

The questions will likely be answered when the transactions in question will be presented by Celsius in court in the next few days as part of disclosures by the crypto-lender regarding its finances.

There’s also a possibility Mashinsky could be forced to return the $10 million as in the 90 days leading up to a bankruptcy filing, payments by a company can be reversed to benefit creditors under United States laws.

Mashinsky resigned as CEO of Celsius on Sept. 27 saying his role “has become an increasing distraction” but said he would continue to focus on helping find a plan to return funds to creditors.

NEXO risks 50% drop due to regulatory pressure and investor concerns

September 30, 2022 Coin Telegraph

Altcoin

Analysts fear NEXO price could come under pressure if regulatory action in the United States begins to intensify.

Crypto lending firm Nexo is at risk of losing half of the valuation of its native token by the end of 2022 as doubts about its potential insolvency grow in the market.

Is Nexo too centralized?

For the unversed: Eight U.S. states filed a cease-and-desist order against Nexo on Sep. 26, alleging that the firm offers unregistered securities to investors without alerting them about the risks of the financial products.

In particular, regulators in Kentucky accused Nexo of being insolvent, noting that without its namesake native token, NEXO, the firm’s “liabilities would exceed its assets.” As of July 31, Nexo had 959,089,286 NEXO in its reserves — 95.9% of all tokens in existence.

“This is a big, big, big problem because a very basic market analysis demonstrates that Nexo would be unable to monetize a significant chunk of these tokens,” noted Mike Burgersburg, an independent market analyst and author of the Dirty Bubble Media Substack, adding:

“Given that fact, the true value of the $NEXO tokens on Nexo’s balance sheet is likely close to $0.”

NEW: “IS NEXO NEXTO?”

According to state regulators, Nexo is insolvent without counting $NEXO tokens on their balance sheet.

This is the same situation Celsius Network was in… and basic market analysis suggests real value of their $NEXO is ~$0 https://t.co/txt1kOSydH
— dirtybubble.usd (@MikeBurgersburg) September 28, 2022

Comparisons with Celsius

Burgersburg also alleged that Nexo faces insolvency risks because it holds the vast majority of NEXO’s token supply on its platform. He drew comparisons to Celsius Network, a now-defunct crypto lending firm that owned more than 50% of its native token, CEL.

*The top 100 NEXO holders collectively own 95.53% token supply. Source: Etherscan*

Celsius ended up holding over 90% of the total CEL tokens in circulation after attracting deposits and collateral from customers. This made CEL extremely illiquid and, thus, volatile. In other words, CEL became a deeply imperfect asset for patching Celsius’ troubling balance sheets.

“NEXO token is even more illiquid than the bankrupt Celsius Network’s CEL token,” warned Burgersburg, noting that the token’s average daily trading volume comes to less than 1% of its market capitalization.

However, a Nexo spokesperson denied the allegations, clarifying that the data they provided to Kentucky regulators was for one of the Nexo Group’s entities.

“We can confirm that on a consolidated basis, NEXO tokens represent less than 10% of the company’s total assets,” they told Cointelegraph, adding:

“That, in return, exceeds the company liabilities even when excluding the company’s net position in NEXO tokens.”

As to why Nexo holds more than 90% of the NEXO supply, the firm’s spokesperson cited the token’s economics and utility, saying that they create natural incentives for clients to keep their tokens on the platform.

“In addition to earning higher interest rates on their digital asset balances by holding NEXO tokens on the Nexo platform, clients can use NEXO tokens as collateral, earn interest on them and exchange them directly on the Nexo platform,” they explained, adding:

“The same is true for the tokenomics of companies with similar value propositions such as FTT, BNB and CRO, held predominantly on FTX, Binance and Crypto.com, respectively.”

NEXO price could get rocky

The fear, uncertainty and doubt surrounding the rumors of market volatility or stringent regulation against crypto lending platforms could create negative investment sentiments toward NEXO. Unfortunately, the token’s technical setup suggests the same.

Notably, NEXO’s price has been forming what appears to be an ascending triangle on its longer-timeframe charts since June 12. Ascending triangles are considered bearish continuation patterns in a downtrend, which makes NEXO susceptible to extreme price declines.

By the rule of technical analysis, an ascending triangle resolves after the price breaks below its lower trendline and continues falling in the same direction until it reaches the level that is at length equal to the triangle’s maximum height.

This setup is illustrated in the chart below.

*NEXO/USD 3-day price chart featuring ascending triangle breakdown setup. Source: TradingView*

In the event that the pattern confirms, the price of NEXO could fall toward $0.47, down about 50% from its current price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Nexo ‘surprised’ by state regulators’ actions, says co-founder

September 29, 2022 Coin Telegraph

California Department of Financial Protection & Innovation

Kalin Metodiev emphasized that Nexo has been navigating through conversations with regulators for the past couple of years to ensure compliance, and was surprised that this news was “thrown out there in public.”

Kalin Metodiev, the co-founder and managing partner of crypto lender Nexo stated his firm was “surprised” by the way in which eight state regulators publicly took action against it for securities violations.

Earlier this week the California Department of Financial Protection & Innovation (DFPI) filed a desist and refrain order against Nexo’s Earn Interest Product, claiming the company was offering a security product that had not been cleared by the government for sale in the form of an investment contract.

The DFPI also stated that it was joining regulators from seven other states in taking action against the company, including Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont.

Speaking with Cointelegraph at Token2049, Metodiev explained that Nexo was caught off guard with the latest regulatory push back, as it has been “trying to be responsible” by engaging in direct conversations with the regulators such as the Securities and Exchange Commision (SEC) for quite some time.

“We were a little surprised by this news being thrown out there in public, you know, because this isn't a process that just started this week,” he said, adding that:

“We have worked with our legal advisors in the U.S. that we have used for the last couple of years to navigate us specifically through these waters in these conversations.”

*Kalin Metodiev, the co-founder and managing partner of crypto lender Nexo*

Metodiev said Nexo also communicated to the SEC earlier this year that it was “voluntarily” discontinuing services for new U.S. customers, suggesting the firm was working in good faith and aiming to be compliant with local regulations.

The product has not been available to new users in the United States since Feb. 19, and existing U.S. account holders were unable to make new deposits into their accounts.

“The event that made us make the decision was actually the SEC ruling against BlockFi in February. The moment we saw that we established contact with the SEC, and we communicated that we're voluntarily discontinuing, taking money from U.S. customers. And we haven't been working with new customers for our interest generating product.”

Ultimately this hasn’t put Nexo off over providing services in the U.S. however, as the firm will continue to remain in conversations with regulators over its crypto offerings.

Metodiev also highlighted that the company is looking at U.S. expansion through other avenues, pointing to Nexo acquiring a stake in Hulett Bancorp this week, a holding company that owns the federally chartered Summit National Bank.

Nexo has also been out on the look out for crypto company acquisitions, with Metodiev noting that the firm has had discussions with a lot of liquidity troubled firms in the bear market, even the likes of Voyager Digital and Celsius.

While he stated discussions had been going well with various firms, he didn’t provide any concrete details on any deals that could be in the works. Metodiev suggested it had been priced out of a Voyager deal, as its $1.4 billion asset valuation that FTX snapped it up for, became too high for Nexo.

“If the opportunity becomes too rich for us, as I mentioned, our risk management, kicks in and we say, you know, we're not sure that we can break even on this. We want to help the people and the platform, but at the same time, it needs to be a normal business assessment for us,” he said.

US Commodities Regulator CFTC Slaps Crypto Firm With $250,000 Fine, Issues Cease-and-Desist Order

September 23, 2022 The Daily Hodl

Celsius CEO Alex Mashinsky Launches ‘Audacious’ Revival Plan for Bankrupt Crypto Firm: Report

September 15, 2022 The Daily Hodl

Celsius Network is bankrupt, so why is CEL price up 4,000% in two months?

August 13, 2022 Coin Telegraph

Altcoin

Takeover rumors and an ongoing short squeeze help CEL price rally but is there enough momentum for more upside?

Crypto lending platform Celsius Network has an approximately $1.2 billion gap in its balance sheet, with most liabilities owed to its users. In addition, the firm has filed for bankruptcy protection, so its future looks bleak.

Still, Celsius Network's native utility token CEL has soared in valuation by over 4,100% in the last two months, reaching around $3.93 on Aug. 13 compared to its mid-June bottom of $0.093.

In comparison, top coins Bitcoin (BTC) and Ether (ETH) rallied 40% and 130% in the same period.

*CEL/USD daily price chart. Source: TradingView*

Takeover rumors behind CEL explosion?

Technically, the price rally made CEL an excessively valued token in early August when its relative strength index (RSI) crossed above the 70 threshold.

Takeover rumors appear to be behind CEL's upside strength. Notably, Ripple wants to purchase Celsius Network's assets, according to an anonymous source cited by Reuters on Aug. 10.

Reuters reported that Ripple is interested in Celsius assets but there's no confirmation yet from either companies. Celsius has halted withdrawals from the platform since June and has filed for Chapter 11 bankruptcy which will enable them gradually payback what they owe.
— Tajo Crypto (@TajoCrypto) August 10, 2022

CEL's price more than doubled after the piece of news hit the wire.

In July, rumors also surfaced about Goldman Sachs' intention to acquire Celsius Network for $2 billion. CEL was changing hands for as low as $0.39 around that time.

CEL price short squeeze

An army of retail traders also appears to be behind the CEL's giant upside push in the last two months.

Some traders have organized a short squeeze to limit CEL's downside prospects. A short squeeze is when an asset's price rises suddenly, forcing short sellers to buy back the asset at a higher price to close their positions.

Bitcoin & Celsius Update

BTC is very choppy so my focus is on altcoins & CEL. I'd like btc to hold 22k for bullish bias. Cel wants breakout again, Iam looking to buy more above 2.6 with #CELShortSqueeze army behind it, could CEL pump to $3 next?

LIKES/RETWEETS APPRECIATED pic.twitter.com/5axZiwcl1Q
— WSB Crypto Mod (@traderrocko) August 12, 2022

It is possible to create a short squeeze because of CEL's lowering circulating supply, primarily due to the freeze on Celsius Network's token transfers.

Interestingly, FTX had about 5.1 million CEL tokens on Aug. 13, approximately 90% of all the total circulation across exchanges. Meanwhile, the amount of open short positions on the exchange was around 2.66 million CEL versus the monthly high of 2.96 million CEL on Aug. 11.

*FTX sport short. Source: Legacy Synthesis*

In other words, short traders have closed about 300,000 CEL positions in just two days.

What's next for Celsius toke?

Short squeezes are hard to sustain over a long period, history shows.

Such prospects put CEL at risks of facing extreme correction in the coming weeks or months. As said, the token is already overbought, which further adds up to the downside outlook.

*CEL/USD three-day price chart. Source: TradingView*

Drawing a Fibonacci retracement graph from $6.5-swing high to $0.39-swing low churns out interim support and resistance levels for CEL. Notably, the token now eyes a breakout above its 0.618 Fib line (~$4.21), with its upside target at $5.25, up 45% from today's price.

Conversely, a break below the support level at the 0.5 Fib line (~$3.48) risks crashing CEL toward $2.75, down 25% from the current price level.

US-Based Lending Firm Owes $439,000,000 to Embattled Crypto Firm Celsius: Report

July 18, 2022 The Daily Hodl

California regulator investigating crypto interest accounts

July 13, 2022 Coin Telegraph

California DFPI

The regulator also said in its view that certain crypto interest account providers were providing unregistered securities, such as BlockFi and Voyager.

The California Department of Financial Protection and Innovation (DFPI) has warned consumers to “exercise extreme caution” when dealing with interest-bearing crypto-asset accounts.

The DFPI stated that it is investigating multiple crypto interest account providers to determine whether they are “violating laws under the Department’s jurisdiction.”

In a July 12 note, the DFPI emphasized that crypto-interest account providers “are not governed by the same rules and protections as banks and credit unions” and that some platforms are “preventing customers from withdrawing from and transferring between their accounts.”

“The Department warns California consumers and investors that many crypto-interest account providers may not have adequately disclosed risks customers face when they deposit crypto assets onto these platforms.”

“Consumers are encouraged to exercise extreme caution before responding to any solicitation offering investment or financial services,” the DFPI added.

The DFPI also said that in its view certain crypto-interest account providers have been providing unregistered securities, pointing to two cease and desist orders it recently issued to BlockFi and Voyager to stop their offerings in California.

The warning comes in response to crypto interest account providers such as Celsius Network and Voyager Digital both locking up customer assets over severe liquidity issues amid a crypto bear market.

As it stands, customer funds of both platforms have been locked up for several weeks, with the fate of their depositors’ holdings is still unclear.

Voyager has at least outlined a potential recovery plan after post-bankruptcy restructuring, which would allow depositors to receive a combination of Voyager tokens, cryptocurrencies, “common shares in the newly reorganized company,” and funds from any proceedings with 3AC.

However, the company has also tentatively suggested that it may not be able to make all users whole again.

In a blog post on Monday, Voyager stated that “the exact numbers will depend on what happens in the restructuring process and the recovery of 3AC assets.”

Depositors weren’t happy, with Twitter user SizzleMcAffy seemingly echoing the DFPI’s concerns about risk disclosures:

“If I’d known that this platform could freeze my assets without consent, I’d never have opened an account. It’s crazy that you all can use our assets to prop your value up. This kind of behavior is going to severely damage the crypto industry.”

Crypto Lending