SEC Sues Genesis and Gemini 🚨

GM folks 👋🏻 - Happy Friday. Welcome back to Chain Catalyst, the best newsletter for web3 builders and investors. We have a lot to cover today. Here's a quick download. FTX locates $5 billion, Nexo is in trouble, and the SEC sues Genesis & Gemini. Boy oh boy 😮‍💨

In Today's Email:

• What Matters: SEC sues Genesis and Gemini 👨‍⚖️

• Founders Highlight: Mike Sall & Blake West of Warbler Labs 🧪

• Deal Flows: $1 billion web3 fund from UAE 📈

WHAT MATTERS

SEC Sues Genesis and Gemini

State of play: As the ongoing public battle between Gemini and Genesis continues, the teacher has finally stepped in to interject. The SEC has sued both companies over Gemini's "earn" program, alleging that the earning program was an unregistered security offering.

• “Defendants offered and sold the Gemini Earn Agreements through the Gemini Earn Program without registering” with securities regulators, the complaint said. “As a result, investors lacked material information about the Gemini Earn program that would have been relevant to their investment decisions.”

Cameron Winklevoss commented on SEC's action, stating that the agency's action does nothing to further Gemini's efforts in helping Gemini Earn users get their assets back. He also said that Gemini had an ongoing discussion with the SEC about the Earn program, but the agency has never raised any issue prior.

Many on crypto Twitter argue that the SEC is just trying to win brownie points, taking action long after customers are hurt instead of providing clear guidance in the first place. But to be fair, BlockFi was fined $100M for similar offerings, so perhaps both Gemini and Genesis should've seen this coming from miles away.

Why it matters: Genesis reportedly owes its creditors $3 billion and DCG is looking to sell its VC portfolio assets to help pay back the loan that DCG owes to Genesis. The last sentence combined with the SEC's involvement will likely speed up the asset-selling process to raise cash to make everybody whole. This potentially causes further downside to the market.

• Another crypto lender with similar products, NEXO is also under a lot of trouble as Bulgarian authorities raided its office and probed the company, stating that an investigation is going on alleging Nexo of setting up an organized crime group, tax crimes, money laundering, banking activity without a license and computer fraud.

For builders: Truly understand how a product works. In the months leading to Terra's downfall, many companies, even those backed by Y Combinator, were essentially just a front-end wrapper for Terra's Anchor protocol yield. If you don't know how it works, don't fall into the FOMO. Crypto isn't social media. If you move fast and break things, you might go to jail.

For investors: Founders need more guidance on the financial and legal aspects. Many web3 builders are focused on technology. They're excited about the potential and promise of a truly decentralized infrastructure without understanding the legal ramifications of their products. It's the job of investors to provide necessary controls around this matter.

BUILDER-INVESTOR HIGHLIGHT

Mike Sall & Blake West, Founders of Goldfinch

Mike Sall and Blake West are the founders of Warbler Labs and Goldfinch. Both of them met at Coinbase and decided to leave their jobs to build Warbler Labs. Building new startups during covid-19 might be scary for anyone, but not for them. Continuously building since July 2020, Goldfinch finally launched for the first time in August 2021.

Previous backgrounds:

• Mike Sall was formerly a Product Manager at Adobe, the Head of Data Science at Medium, and the Head of Product Analytics at Coinbase.

• Blake West was formerly a Hacker in Residence at Hack Reactor, a Software Engineer at Hint Health, and a Senior Backend Engineer at Coinbase.

The big idea: On Goldfinch, you can lend USDC to the various institutional borrowers available on their website that offer various APY from 12% to 19% in USDC plus rewards in the $GFI token. As an RWA lender, Goldfinch scores the creditworthiness of borrowers not by crypto assets, but by off-chain assets and income. All loans are fully collateralized too.

• No need to worry about the lenders, complete information is available on the website for each lender. If you can not decide which company do you want to lend your USDC to, you can choose the Goldfinch Senior Pool. This pool will diversify the USDC across the borrowers and your USDC will be protected by first-loss capital supplied by them.

Despite the bear market, Goldfinch has kept growing. In 2022, the protocol grew its active loans to $101M (a 250% growth), deployed 17 smart contracts, and generated $1.2M in protocol revenue.

DEAL FLOWS

Venom Foundation x Iceberg Capital $1 Billion Fund

Venom Foundation x Iceberg Capital: Both UAE-based investor groups are partnering to allocate $1 billion in web3 applications. The fund will be blockchain agnostic and will invest in innovating web3 protocols including DeFi, banking services, and GameFi. The fund will be led by former BlackRock executive Peter Knez and veteran investor Mustafa Kheriba.

• "AMM [Automated Market Makers] was the dominant market-making method in crypto for the past 2 years. The lack of a more efficient market-making strategy is in large part because of technology restrictions like low speed and smart-contract restrictions. We believe Sei’s customized Layer 1 solution will be a game changer in the industry."

Deal flows in the past week:

• Quasar, $5.4M Unknown Round

• Alkimiya, $7.2M Unknown Round

• Quantum Temple, $2M Pre-Seed Round

• Forest Protocol, $4.1M Pre-Seed Round

• Ondefy, $1M Seed Round

• C14, $2.5M Seed Round

• Easy Company, $14.2M Seed Round

• CyberX, $15M Series A

• Exactluy Protocol, $2M Unknown Round

• Jumbo, $3.5M Unknown Round

• STFX, undisclosed strategic investment round from Avalanche.

• Not Boring Capital III, $30M Venture Fund

QUICK BITES

• SEC sues Genesis and Gemini over earn program.

• FTX recovered $5B in assets.

• UAE launches billion-dollar web3 fund.

• 3AC updates on bankruptcy process.

• Coinbase bonds downgraded by S&P.

• Crypto.com cuts 20% of workforce.

• Genesis owes $3 billion to creditors.

• Nexo probed and raided by Bulgaria.

• FTX Japan update, customers to get money starting in February.

• Binance aims to grow headcount 30% in 2023.

• Binance admits past flaws in stablecoin backing.

MEME & NOTEWORTHY READS

• @wassielawyer’s thread on SBF’s update regarding FTX’s bankruptcy.

• Ryan Watkins’ article reflecting on crypto past, present, and future.

• a16z crypto’s report on progressive decentralization.

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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.