Silicon Valley Bank’s UK branch shut down by Bank of England

March 12, 2023 Coin Telegraph

Several U.K. venture capital firms have shown support for SVB UK stating it is a “trusted” partner and plays a "pivotal" role in supporting startups.

The Bank of England (BoE) has halted the operations of Silicon Valley Bank’s U.K. branch (SVB UK), stating that it has a “limited presence” in the United Kingdom (UK) and no “critical functions” supporting the financial system.

BoE issued a statement on Mar. 10, declaring that SVB UK will “stop making payments or accepting deposits,” as BoE intends to apply to the court to place SVB UK into a “Bank Insolvency Procedure.”

This follows news on the same day that the California Department of Financial Protection and Innovation ordered the closure of Silicon Valley Bank (SVB) in the United States.

BoE explained that a bank insolvency procedure would mean that “eligible depositors” are paid out by the Financial Services Compensation Scheme (FSCS) up to the “protected limit” of £85,000 (approximately $102,288 USD) or up to £170,000 (approximately $204,577 USD) for joint accounts, as “quickly” as possible.

It added that the bank liquidators would be responsible for managing the remaining SVB UK assets and liabilities during its insolvency proceedings, with any recoveries “distributed” to its creditors.

Several U.K. venture capitalists (VCs), including Index Ventures and Atomico, issued a joint statement on Mar. 12 endorsing SVB UK. The statement expressed support for SVB UK stating that it is a “trusted” and “valued partner” that plays a “pivotal” role in supporting startups in the U.K.

A joint statement for @Jeremy_Hunt & @hmtreasury, from a number of leading UK venture capital funds, in support of @SVB_UK pic.twitter.com/7dGHh3WHnr
— Atomico (@atomico) March 11, 2023

The Coalition for a Digital Economy, a U.K. non-profit that campaigns for policies to support digital startups, stated on Mar. 11 that there are a “large number” of startups and investors in the ecosystem who have “significant exposure” to SVB UK, adding that they will be “very concerned.”

Meanwhile, a Mar. 11 Castle Hill report revealed that prominent blockchain VCs have over $6 billion worth of assets held by the now-defunct financial entity.

These include $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm, and $560 million from Pantera Capital.

Sequoia Capital, Paradigm among VCs facing “tricky” FTX investor lawsuit

February 15, 2023 Coin Telegraph

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Caroline Ellison

It’s a “tricky case,” as it is unknown what obligation these firms actually had to “completely separate investors,” suggests a crypto lawyer.

Users of bankrupt crypto exchange FTX have reportedly taken aim at financiers who promoted the platform suggesting their efforts added an “air of legitimacy” to the now-defunct exchange, a case labeled as "tricky" by a crypto lawyer.

A Feb. 15 Bloomberg report revealed a class-action suit filed Feb. 14 by FTX investors against venture capital firm Sequoia Capital and private equity firms Thoma Bravo and Paradigm.

The firms were accused by the investors of touting “their own investments” of hundreds of millions of dollars in FTX.

It was alleged the firms were involved in a promotional marketing campaign in 2021 which the investors alleged added an “air of legitimacy” to the disgraced crypto exchange.

The three firms were all investors in FTX’s $900 million Series B round in July 2021, the largest raise in crypto history, in which various partners of the firms spoke highly of former FTX CEO, Sam Bankman-Fried.

In a statement following the funding announcement in July 2021, Paradigm’s co-founder Matt Huang called Bankman-Fried a “special” founder who is “stunningly ambitious.”

Speaking to Cointelegraph, crypto lawyer Liam Hennessy, partner at Australian law firm Gadens, stated that it is a “tricky case,” and he questions “what obligation Sequoia and others” have to “completely separate investors.”

He added that despite the fact Sequoia’s due diligence wasn’t great, it doesn’t make it “liable to others.”

Hennessy believed it could be a case of “buyer beware” – as there is no suggestion that Sequoia wasn’t “playing within the regulatory rules.”

Cointelegraph contacted Sequoia Capital, Thoma Bravo and Paradigm for comment but did not receive an immediate response.

A separate Feb. 15 Bloomberg report revealed that in the same court filing Sam Bankman-Fried and his father, along with former FTX and Alameda Research executives Caroline Ellison, Nishad Singh and Gary Wang were all issued with a subpoena, an order for a person to attend court, to provide further evidence.

It was stated that Joseph Bankman, Ellison, Wang, and Singh are due to attend court on Feb. 16 while Sam Bankman-Fried is expected to attend on Feb. 17.

Getting rid of crypto staking would be a ‘terrible path’ for the US — Coinbase CEO

February 9, 2023 Coin Telegraph

carbon

Banning retail crypto staking in the US would result in even more businesses moving offshore, argues the Coinbase co-founder.

The CEO and co-founder of cryptocurrency exchange Coinbase, Brian Armstrong, believes that banning retail crypto staking in the United States would be a ‘terrible’ move by the country's regulators.

Armstrong made the comments in a Feb. 9 Twitter thread which has already been viewed over 2.2 million times, after noting they've heard “rumors” that the U.S. Securities and Exchange Commission “would like to get rid of crypto staking” for retail customers.

“I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.”

Armstrong did not share where the rumors originated from but continued to note that staking was “a really important innovation in crypto.”

“Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints,” he added.

2/ Staking is a really important innovation in crypto. It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints.
— Brian Armstrong (@brian_armstrong) February 8, 2023

Armstrong also referenced an Oct. 5 blog post from crypto investment firm Paradigm, which argued that Ethereum’s transition to proof-of-stake and its subsequent “staking” model does not make it a security.

The Paradigm post came just a few weeks after SEC Chairman Gary Gensler suggested that proof-of-stake (PoS) cryptocurrencies could trigger securities laws on Sep. 15, 2022, while speaking to reporters after a Senate Banking Committee meeting.

Armstrong also lambasted the current lack of regulatory clarity in the U.S. and subsequent “regulation by enforcement” that he says is driving companies offshore, such as crypto exchange FTX.

He has reiterated calls for regulation that provides clear rules for the industry while preserving innovation.

According to Staking Rewards, the top four staked cryptocurrencies by market cap account for over $55 billion in staked assets, suggesting a country-wide ban would be a huge hit to the country’s crypto industry which has already seen an exodus of crypto-related businesses.

*Top crypto assets by staking market cap. Source:* *Staking Rewards*.

Some industry commentators have suggested that the SEC might go after centralized parties which offer staking services rather than the technology itself, believing the latter would be a losing battle which would “crush them in precedent.”

Timely reminder that https://t.co/splf30ft12 outlines the legal arguments of ETH staking under the Howey Test.

I believe the SEC would likely go after centralized parties offering staking, and not PoS itself as that'd be a harder fight that could crush them in precedent. https://t.co/YiD2Cpxx6z
— Adam Cochran (adamscochran.eth) (@adamscochran) February 8, 2023

The general counsel for Delphi Digital’s research and development arm, Gabriel Shapiro, suggested there is a strong argument that staking services provided by centralized exchanges like Coinbase constitute a security, drawing parallels between them and other “Earn” products.

Personally although I do think "Earn" programs offered by CEXs are debt securities, I think it is *possible* to offer pure PoS as a service, even on a CEX, without the offer being a security, depending on the details of the terms. But tbqh it's a close case.
— _gabrielShapir0 (@lex_node) February 8, 2023

Coinbase is currently subject to an ongoing SEC probe, which Coinbase revealed in an Aug. 9, 2022 SEC filing was in relation to its staking rewards amongst other offerings.

Flashbots Seeks to Raise $50M at $1B Valuation: Report

January 19, 2023 The Crypto Briefing

Investment Firm Paradigm Still Optimistic About Crypto — Says ‘Issues at FTX Are Precisely Ones Defi Can Solve’

November 17, 2022 Bitcoin.com

Paradigm co-founder feels ‘deep regret’ investing in SBF and FTX

November 16, 2022 Coin Telegraph

Alameda

Some challenged whether the multi-billion dollar venture capital firm did enough due diligence on FTX prior to investment.

The co-founder of asset management firm Paradigm says they feel “deep regret” for having invested in FTX amid recent revelations involving FTX, Alameda Research, and Sam Bankman-Fried.

In a Twitter post on Nov. 15, Matt Huang, co-founder and managing partner of Paradigm said the firm is “shocked” by the revelations surrounding the two companies and their founder, adding:

“We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.”

Matt Huang, Managing Partner and Co-Founder of Paradigm Source: Paradigm

Paradigm is a crypto and Web3-focused venture capital firm based in San Francisco. In April reports suggested the firm’s assets under management totaled approximately $13.2 billion.

In Nov. 2021, the firm announced a $2.5 billion New Venture Fund, which dethroned Andreesen Horowitz’s (a16z) as the largest venture fund in crypto.

The firm’s website currently lists FTX and FTX.US in its portfolio. Reports suggest its investment in the exchange is around the $278 million mark.

Huang said that Paradigm’s equity investment in FTX only constituted “a small part of our total assets,” adding that it has now written its FTX investment down to $0.

Facts are still coming to light, and there will be many lessons to learn. We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.
— Matt Huang (@matthuang) November 15, 2022

He also assured that the firm has never traded on FTX or has ever invested in tokens linked to the exchange, including FTX Token (FTT), Serum token (SRM), Maps.ME Token (MAPS), or the Oxygen Protocol token (OXY).

“We never traded on FTX and did not have any assets on the exchange. We have never been investors in related tokens such as FTT, SRM, MAPS, or OXY.”

Since posting the tweet, a number of Twitter users challenged whether the firm did enough due diligence prior to investing in FTX.

you guys made a bad bet. you didn’t do your due diligence. and your endorsement led others to believe in & support the fraud that was SBF/FTX

that was very bad, and i hope you’ll strive to do better

but i respect taking the L and publicly owning up to it. that is the right move
— DCinvestor.eth ⌐◨-◨ (@iamDCinvestor) November 15, 2022

Speaking to Cointelegraph, CK Zheng, co-founder of digital assets hedge fund ZX Squared Capital reflected that in hindsight, many venture capital firms may not have done the proper due diligence on FTX and its executive team, commenting:

“They don’t have a very good governance process, don’t have a board. It’s basically a one-man show.”

“I’m sure when a young company starts to build the company with sophisticated technology [...] I can see how things can go bad quickly if they don't have a good understanding of the technology married with finance.”

“Obviously, they’re smart in one aspect, but they’re running a $32 billion company is very different than, you know, when you manage a small company,” he added.

Investors to have recently marked down their FTX investments include Sequoia Capital, which wrote off its roughly $210 million investment on Nov. 10, Ontario Teachers’ Pension Plan, which invested $95 million in the crypto exchange, and SoftBank Group Corp., which is expected to write down a nearly $100 million investment.

Paradigm