Binance FUD: Too Big to Fail?

Happy Weekend folks 👋🏻 - Binance FUD continues as CZ warns of bumpy roads ahead. Lawmakers are getting active post the FTX collapse. DOJ charges 9 in crypto Ponzi schemes, US Senators introduce crypto AML bill, and Secretary Yellen is asked to delay crypto tax provision. As expected, crypto regulations will be ramping up in the near future.

In Today's Email:

• What Matters: Binance FUD Continues 😨

• Founders Highlight: Dan Romero, Co-Founder of Farcaster 👨‍💻

• Deal Flows: Amber Group & Aztec Network 📈

WHAT MATTERS

Binance FUD Continues

Given its market share, it's unsurprising that Binance is currently under the spotlight. Crypto needs to build towards removing centralized players that can be "too big to fail" for the industry.

State of play: Crypto market continues to dump as the Binance FUD continues. CZ did a not-so-good interview. Mazars, the firm that worked on Binance's proof-of-reserves, has paused work for all crypto clients. Only BUSD on Ethereum is issued by Paxos, a US-based company, and is regulated by the NYDFS. The wrapped versions of BUSD on other chains, including Binance's own blockchain, are unregulated.

• That said, there are always two sides to a story. People are claiming a potential bank run, but Binance does hold more than $60 billion in its publicly disclosed addresses and doesn't show "FTX-like behavior" according to CryptoQuant. However, it deserves to be asked for more transparency and to be stress-tested by its users.

• Kevin O'Leary bashed Binance in his testimony, blaming FTX collapse on Binance, which is frankly just:

By far, the least transparent part of Binance's operation is the one that gets the least amount of scrutiny - the on-chain activities of BNB on Binance's own Beacon Chain. An exchange's dependence on its native token is what makes or breaks it. FTX broke because of FTT. It's paramount that the market pays attention to BNB.

• FTX didn't have its own chain, BNB activities are much trickier to track as Binance owns its own blockchain.

• Binance has only declared 38M BNB as part of its hot and cold wallet holdings.

• @cryptohippo65 predicted that Binance owns between 93M-109M BNB.

• The #4 largest wallet holds 22M BNB.

• @DataFinnovation, a crypto Twitter resident journalist who previously posted the awesome 3AC-GBTC-Genesis-DCG analysis, stated:

Why it matters: So long as the FUD continues while Binance refuses to provide additional transparency, market participants will be taking money out of CEXs, further driving liquidity and prices down. For regulated CEXs and DEXs, this is the time that you've been waiting for to capture more market share.

For builders: There's no reason to store your treasury or runway capital on a centralized exchange. Use multi-sig wallets for on-chain transactions and bank accounts for off-chain transactions. The benefits of using a centralized exchange are not worth the risks.

For investors: Deploy a strong due diligence process. The majority of funds that got their capital stuck on FTX are crypto-native and prop firms. TradFi legacy players that entered crypto didn't get affected as much because they needed to adhere to much stronger compliance frameworks.

BUILDER-INVESTOR HIGHLIGHT

Dan Romero, Co-Founder of Farcaster

Dan Romero is the Co-Founder of Farcaster, a sufficiently decentralized social network. It's an open protocol that enables users to own and transfer their social identity between applications, and for developers to have permissionless access to build applications and features on the network.

What previously was recent: Romero's stride in crypto started with Coinbase. He joined CB in 2014 as the 20th employee and helped grew its headcount to 700. His last role at CB was as VP of Intl Business, leading the firm's institutional effort across Asia-Pacific, the UK, and the EU. Before Coinbase, Romero was already active in the startup scene, having founded the Twitter-based polling application, StrawPoll.

The big idea: After leaving Coinbase, Romero got interested in the question: "Could you make RSS competitive with Twitter?”. That question led to the exploration of the idea with his former Coinbase colleague, Varun Srinivasan. Varun and Romero ended up partnering on an idea called RSS+ with the ultimate goal to build a credibly-neutral protocol. So, how did the RSS+ idea lead to the current Farcaster?

• Web 1: full of protocols such as HTTP (Web), SMTP (Email), and RSS (Content feed).

• Web 2: mobile-first, great UI/UX.

• Farcaster was created to combine the protocol-based ethos of web 1 and the great UX of web 2.

The idea eventually became Farcaster, a sufficiently decentralized protocol for building social networks. Romero is the founder of Merkle Manufactory, an LA-based software firm contributing to the Farcaster protocol.

• Version 1 of Farcaster protocol and clients have been live for a little over a year, with limited access. Version 2 is in the works. Farcaster has also raised a $30M funding round led by a16z.

DEAL FLOWS

Amber Group & Aztec Network

Deal flows in crypto have been relatively slow given the bear market and ongoing liquidity crunch. This week was on track to becoming one of the slowest weeks ever in deal activities. That's until Friday. Amber Group and Aztec funding rounds recorded $400M in one day.

• $520M+ raised

• 20+ deals made

Amber Group $300M Raise: Led by Fenbushi Capital US, crypto trading firm Amber Group raised a $300M Series C. The raise was done as a reaction to the collapse of FTX. Amber has been facing negative headlines recently. It has less than 10% of the firm's trading capital is stuck with FTX and has laid off 300 (40%) of its staff.

Aztec Network $100M Raise: Led by a16z, web3 privacy firm Aztec Network raised a $100M Series B. The firm will use the capital to develop "encrypted architecture that lets individuals properly use blockchains without exposing identifying information", as well as to double its team size from 40 to 80.

Deal flows in the past week:

• Arca, $3.6M Pre-Seed Round

• Metagood, $5M Pre-Seed Round

• Finterest, $1.5M Seed Round

• NF3, $1.65M Seed Round

• Nametag, $2M Seed Round

• Outdefine, $2.5M Seed Round

• Decent, $3.5M Seed Round

• Earn Alliance, $4.75M Seed Round

• Frontrunner, $4.75M Seed Round

• Utorg, $5M Seed Round

• Shibuya, $6.9M Seed Round

• Dogami, $7M Seed Round

• Virtualness, $8M Seed Round

• Forum3, $10M Seed Round

• SudoRandom Labs (SudoSwap), $12.5M Seed Round

• Evertas, $14M Series A

• Blocknative, $15M Series A

• Sooho.io, $4.5M Series A+

• Aztec, $100M Series B

• Balthazar, $2M Private Round

• Anima, $3M Unknown Round

• Nillion, $20M Unknown Round

• Amber, $300M Unknown Round

QUICK BITES

• Amber Group acquires Singapore CEX Sparrow.

• Paradigm Trading cuts salaries by 15%.

• FTX Creditors Committee appointed.

• FTX Exec Ryan Salame tipped Bahamian regulators.

• G20 to develop a global crypto policy consensus.

• QCP Capital has $97M stuck on FTX.

• House Financial Services ask Yellen to delay crypto tax provisions.

• Coinbase launches ERC-20 asset recovery tool.

• FTX asks court permission to sell 4 businesses.

• Microsoft bans crypto mining on its services.

• Raydium suffers $2M exploit.

• Donald Trump launches an NFT collection.

• Jefferies sees FTX creditors recovery up to 40%.

• 3AC had ~$1 billion in July 2022.

• Mazars to pause all crypto exchange proof-of-reserves.

MEME & NOTEWORTHY READS

• Paul Veradittakit's blog on 2023 crypto predictions.

• a16z crypto's blog on exciting crypto ideas.

• Redphonecrypto's report on 69 crypto theses for 2023.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.