Given there’s rarely a dull day in crypto, summarizing a year’s worth of stories requires a significant gap in one’s schedule. Of course, some tales have more retell value than others – and that’s certainly the case with those you’re about to read about. Will these unsolved crypto mysteries finally be resolved in 2023 or will the chronicles carry over until 2024?
Crypto’s Villainous Boy Band
If this industry had a Mount Rushmore of Malfeasance, three candidates whose wrongdoing was exposed this year would certainly be in the running. They are, of course, Terraform Labs’ co-founder Do Kwon (currently on the lam in Serbia), Celsius Network’s CEO Alex Mashinsky, and FTX boss Sam Bankman-Fried.
The trio oversaw their company’s spectacular collapses, and though they may have garnered some sympathy initially, their unscrupulous dealings – which can broadly be categorized as market manipulation – soon came to light. The question is, what happens to them now?
As mentioned above, the disgraced Do Kwon has thus far managed to evade the long arm of the law. According to South Korean prosecutors pursuing him on charges of fraud and breaches of capital markets law, he is laying low in Serbia. Mashinsky, who sneeringly gave critics short shrift prior to crypto lender Celsius’ downfall, has been accused of removing $10m from company coffers weeks before it suspended customer withdrawals. And SBF… How long do you have?
The FTX founder gets a berth on Mount Rushmore, no question. At the time of writing, his extradition from the Bahamas to the U.S. has been green-lit. Bankman-Fried stands accused of committing one of the biggest financial frauds in U.S. history, putting him in league with Ponzi king Bernie Madoff. The bankrupted exchange’s top 50 creditors are owed $3.1 billion.
The question now, of course, is whether this triad will pay for their crimes. And if so, what will be the price? Will they see the inside of a prison cell? Madoff was handed a 150-year sentence, and though his shadiness was especially egregious (literally defrauding thousands of investors of billions of dollars), prosecutors will want to send a stern message to crypto cowboys.
We’ll just have to wait and see what the outcomes will be.
The Endless Ripple-SEC War
It’s been two years since the U.S. Securities and Exchange Commission (SEC) initiated legal proceedings against Ripple Labs for allegedly selling unregistered securities worth over $1.38 billion. And it’s been almost five years since a class action suit was filed against Ripple relating to its “scheme to raise hundreds of millions of dollars through unregistered sales of its XRP tokens.”
Where are we now? Well, this year the back-and-forth continued in the New York courts as both parties debated the question of whether XRP, a top-10 digital asset by market cap, is indeed a security. It’s truly incredible to see such conversations taking place a full decade after Ripple’s founders created the token in 2012.
Recent developments in the story concern the withdrawal of Ripple CEO Bradley Garlinghouse’s attorney Nicole Tatz, and the passing of a predicted December 15 resolution date. With both Ripple and the SEC having filed their final submissions, the crypto community now eagerly awaits the outcome – though it mightn’t be delivered for months given the volume of pages and documents the court has to review.
Next year, we should get a resolution one way or another, and XRP bag-holders, as well as Ripple supporters and employees, will be desperate for the court to rule in their favor. If the regulator is vindicated, will it be the end of Ripple as a viable project?
CBDCs: Will They Drive the Next Bull Run?
Not too long ago, you would’ve been labelled a conspiracy theorist for suggesting that central bank digital currencies (CBDCs) were on the way, and with them, a dystopic scenario whereby governments enjoy unprecedented financial surveillance. Well, here we are.
The Bank of England (BOE) is currently seeking a “proof of concept” for a wallet that will be able to hold a central bank digital currency, and UK Prime Minister Rushi Sunak is strongly in favor of the idea. Elsewhere, Brazil will launch a CBDC in 2024, the Bank of Japan is trialling digital yen with three megabanks, and Joe Biden’s Executive Order 14067 seeks to “prioritize timely assessments of potential benefits and risks [of CBDCs] under various designs to ensure that the United States remains a leader in the international financial system.”
What might the evolution of a centrally-issued form of digital cash mean for the crypto industry, and the fate of assets like Bitcoin and Ethereum? There are different schools of thought on this, but one is that users will flock to native cryptocurrencies to exit the state money system and preserve privacy. The widespread use of decentralized ledger technology, which also underpins traditional digital assets, might also make altcoins more palatable to the masses. Of course, the evolution of CBDCs could also bring increased regulation – which might spell trouble for the industry.
The Polkadot blockchain has perhaps struggled to fulfill its promise in recent years. Marketed as a highly complex, interoperable sharded blockchain network, it was founded by Ethereum O.G. Dr. Gavin Wood and dubbed a potential Ethereum killer in its early days. Perhaps it’ll eventually make good on such lofty aims, but more pressing matters relate to the ‘morphing’ of its native token, DOT, from a security to a software.
The Web3 Foundation that runs Polkadot recently confirmed this pivot, writing that “current day offers and sales of DOT are not securities transactions, and DOT is not a security. It is merely software.” But what does this actually mean in practice?
The confusing transition is a result of meetings between the Web3 Foundation and the Securities and Exchange Commission, which might ring alarm bells for some crypto users. Others, though, will be glad about the Foundation’s apparent due diligence: Lead Developer Shawn Tabrizi took to Twitter to detail steps the Foundation had taken to protect DOT token-holders, such as excluding large purchases from VCs looking to dump on the market and ensuring no-one held a large percentage of the network.
According to Tabrizi, DOT is software that provides “a highly secure, vertical and use case agnostic, coordination for layer-1 blockchains.”
It’s easy to see how the transformation of DOT into a legitimate token in the eyes of the regulator could be perceived as a positive, particularly as it makes the prospect of SEC litigation seem unlikely. But we’ll have to wait until 2023 to see how the market views DOT itself. After all, the SEC hasn’t yet issued a No-Action Letter to confirm Polkadot is in the clear.
The EOS Saga Continues
If you thought the Ripple-SEC battle was bloody, the one between EOS and Block.one is even messier. The blockchain protocol, which holds the record for the biggest ever ICO raise ($4.1 billion in 2018), has been locked in battle with backer and former developer Block.one for years, with the latter currently facing class action suits from EOS investors after a Federal Court rejected a $27.5 million settlement in August.
That sum, of course, is small potatoes compared to the $4.1 billion in damages apparently being sought by the EOS Network Foundation’s (ENF) founder and CEO Yves La Rose. Earlier this month, La Rose claimed “the walls are closing in on Block.One.”
As with Ripple-SEC, it is difficult to know how this one is going to play out. La Rose’s EOS Foundation recently launched a $100m ecosystem fund to invest directly in EOS projects. Block.one, meanwhile, has moved on, having just acquired a 9% stake in Silvergate Capital, the holding company of crypto-fiat gateway firm Silvergate Bank. Despite these business-as-usual moves, the specter of continuous legal wrangling hangs over both parties.
Will we see a ceasefire called in 2023? Will legal judgments finalize the divorce once and for all, leaving both entities free to pursue their own aims?
2022 has been one heck of a year in crypto, but you wouldn’t bet against 2023 being even more eventful. Enjoy the holidays, then buckle up for the ride ahead.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.