Is Ethereum a Security? 😱

GM folks 👋🏻 - It's an eventful Friday.

Crypto markets are down. The total market cap fell below $1 trillion as the NYAG sues KuCoin, the last remaining exchange with a no-KYC tier while alleging that ETH is a security at the same time 🤦 — and oh, Meta is planning a decentralized social network.

Over at the web2 tech world, Silicon Valley Bank is reportedly in trouble. Its stock was down 70%+ in the past few days due to fear of insolvencies.

Perhaps, Michael Burry was right all along.

In Today's Email:

• What Matters: Crypto banking risks continue, Silvergate in trouble 🏦

• Founders-Investors Highlight: Shaun Heng, Venture Partner at Hustle Fund 💪

• Deal Flows: Scroll Ethereum zk-scaling $30M Series A 📜

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WHAT MATTERS

Is Ethereum a Security? 😱

State of play: NYAG filed against KuCoin, alleging that the exchange is violating securities laws. The suit claims that KuCoin offers tokens that meet the definition of security without registering first.

• In the filing, Ethereum is named as one of the tokens classified as a security.

• The NYAG alleged that the Ethereum Foundation and Vitalik retain significant influence and driving forces behind major initiatives, such as the transition to Proof-of-Stake.

• The NYAG argued that one ETH developer who worked on the transition to Proof-of-Stake stated that his team was "granted permission by the Ethereum Foundation".

Will this be a problem for Ethereum? -- Well... yes and no.

The key takeaway: Regulators are on the offense. They're in the "and then they fight you" stage. Silver lining - It might be better for this question of whether Ethereum is a security to be settled in court once and for all 🤷

Why it matters: Ethereum is the second-largest digital asset by market capitalization. It has the largest TVL, developers community, and decentralized applications. Any rules regarding Ethereum and the consensus mechanism that it lives on, Proof-of-Stake, will significantly shape the future of the crypto industry.

For builders: Be careful and truly plan out your token launch mechanism. If you don't need one, postponing your launch wouldn't be a bad idea. If you need to do a launch, make sure that it's effective and relatively conservative on the use cases (read: $BLUR)

For investors: It's always a good time to beef up your legal resources. It seems that the operational cost as a professional crypto investor, especially in developed countries, will increasingly become more expensive as regulators continue their crackdown ⚖️

BUILDER-INVESTOR HIGHLIGHT

Shaun Heng, Venture Partner at Hustle Fund

Shaun Heng is a Venture Partner at Hustle Fund. Previously, he was most notable as the Head of Spartan Labs, a $100M Web3 Venture Studio under the Spartan Group. Prior to that, he was also the VP of Growth and Operations at CoinMarketCap.

• Shaun was the Founder of Eatsy Technologies, a food-ordering app for Southeast Asia. He raised more than $2M.

• It was awarded the Best Restaurant Order-Ahead App (Singapore) at the Global Hospitality Award 2019.

Previous backgrounds:

• Shaun started his career as an Investment Banker for Standard Chartered.

• Shaun then moved to RedMart, a startup that was acquired by Lazada (Alibaba), as a Senior Corporate Development Analyst.

The big idea: Shaun is now an Angel Investor and a Venture Partner at Hustle Fund, a $170M AUM venture fund investing in the earliest stage of startups. Notable portfolio companies include Epic Games, Pipe, AngelList, and Public.

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DEAL FLOWS

Scroll $30M Series A

🤝 Deal flows remain consistent. This week we saw $290M+ in deals, excluding Alpha Sigma Capital's latest $100M venture funds.

Scroll $30M Series A: The Ethereum scaling project with zk-rollup technology has raised $30M in preparation for the upcoming testnet. The round was led by Polychain Capital, with participation from Bain Capital Crypto, Robot Ventures, and Geometry DAO.

• Angel investors from the Ethereum community such as Anthony Sassal, Santiago Santos, and Ryan Adams have also joined the round.

• Scroll declined to comment on the structure of the round, whether it was raised via an equity round, token, or both.

• Scroll's closest competitors are StarkWare and Matter Labs.

Deal flows in the past week:

• Nealthy, $1.3M Pre-Seed Round

• ECSA, $3M Pre-Seed Round

• TonStarter, $1.5M Seed Round

• Tensor, $3M Seed Round

• REPUBLIK, $3.5M Seed Round

• Gyroscope, $4.5M Seed Round

• Cubist, $7M Seed Round

• Wildxyz, $7M Seed Round

• Proven, $15.8M Seed Round

• Matchday, $21M Seed Round

• Ethermail, $4M Pre-Series A

• DigiFT, $10.5M Pre-Series A

• Kresus, $25M Series A

• Scroll, $30M Series A

• Believer, $55M Series A

• Metrika, $4M Series A+

• Relai, $4.5M Unknown Round

• Few and Far, $10.5M Unknown Round

• Mauve, $15M Unknown Round

• OPNX, $25M Unknown Round

• Toku, $20M Unknown Round

• Shardeum, $5M Strategic Round

• OpenChat, $5.5M Community Crowdfunding Round

• TwelveFold, $16.5M NFT Auction

• Alpha Sigma Capital, $100M Crypto Venture Funds

QUICK BITES

• NYAG says ETH is a security, sues KuCoin.

• US DOJ appeals Voyager-Binance US deal approval.

• Silicon Valley Bank in trouble.

• Huobi Token had a flash crash, Justin Sun to inject $100M.

• Silvergate plans to wind down.

• US Government moves $1B in Bitcoin.

• CFTC says stablecoins are under its jurisdiction.

• Gemini loses JPMorgan banking relationship.

• Coinbase announces Wallet-as-a-Service product.

• US Treasury proposes 30% excise tax on crypto mining firms.

• Federal Reserve sets up a specialized crypto team.

• Crypto Startups Shares reportedly available at large discounts.

• Hedera undergoes technical irregularities.

• Gate.io & Visa to launch crypto debit card in EU.

• Mt. Gox announces deadlines push back.

MEME & NOTEWORTHY READS

• Arthur Hayes' article on NakaDollar stablecoin.

• Coin Center's article on why Ether is not a security.

• Zee Prime Capital's article on the future of medicine and tokens.

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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.