Blockchain Bites: BitMEX Investigation, Trump’s Diagnosis, Babel’s Leaked Audio

BitMEX is in hot water with the CFTC and DOJ. Thursday, a dual agency operation levied charges against the derivatives exchange and several employees for facilitating unregistered trading and violating the Bank Secrecy Act. 

Elsewhere, another European financial head has intimated the need for a “digital euro,” Atari’s cryptocurrency has a sale date and Venezuela built a national stock exchange on Ethereum. 

BitMEX’s big mess
The U.S. Commodity Futures Trading Commission (CFTC) and federal prosecutors are charging crypto trading platform BitMEX with facilitating unregistered trading and other crimes. Further, several executives and employees have been charged with violating the Bank Secrecy Act, with one in custody. BitMEX CEO Arthur Hayes remains at large. It is uncertain how this may affect the crypto industry, though it appears traders took it in stride in intraday trading. More than 32,200 BTC (19% of the exchange’s total funds, worth around $337 million) moved off BitMEX before the exchange’s set withdrawal time at 13:00 UTC, according to data source Glassnode.

Digital euro
An executive at the European Central Bank (ECB) has said a future digital euro initiative could save the eurozone from relying on digital currencies issued by foreign entities. In a post on Friday, ECB executive member Fabio Panetta, formerly head of the Italian central bank, said the envisioned aim of a central bank digital currency (CBDC) would be to “preserve the public good that the euro provides to citizens.” The statement comes as the ECB moves to trademark the phrase “digital euro.” Though, officially, it should be said the central bank is only studying the idea, without committing to issuing a CBDC.

Babel’s leverage
Leaked recordings of a private conversation suggest crypto lender Babel Finance leveraged some user funds to long bitcoin and faced potential default risks during this year’s Black Thursday market crash in March. Seven audio files first emerged online that appear to be parts of a longer in-person conversation between Babel co-founder Del Wang and an unknown person. The company disputes this claim. Babel is primarily a savings and loan operation that, according to the recordings, also placed leveraged bets on BTC’s price. Using $750,000 raised from Neo Growth Capital (NGC) and another $4 million as deposits, also from NGC, Babel began taking out positions in early 2019, when the price dropped to $3,000, betting it could reach as high as $18,000, CoinDesk’s Wolfie Zhao reports. Things got messy this year, when a coronavirus-led panic crashed the crypto markets.

Atari coin
The Atari Group, the company behind such classic video games as Pac-Man, will begin publicly selling its Atari Token (ATRI) cryptocurrency in early November. ATRI is a self-styled entertainment industry payment method in the form of an ERC-20 token atop the Ethereum blockchain. It has been in the works since at least early 2018. Crypto casinos, “blockchain games” and the video game distribution platform Ultra.io will be among the utility token’s earliest use cases, said Atari’s blockchain subsidiary, Atari Chain. The token will list on Bitcoin.com and Atari’s own crypto exchange at the close of the public sale.

National and decentralized
Venezuela has launched a “decentralized” national stock exchange built atop the Ethereum blockchain. Enabled under a new law listed in the country’s Official Gazette on Tuesday, the exchange comes as part of new measures announced by Pres. Nicolas Maduro in a bid to sidestep tough U.S. sanctions. A draft of a wider “Anti-blockade Law for National Development and the Guarantee of Human Rights,” aimed to give the government tools to “defeat all mechanisms of persecution and international blockade,” was also announced Tuesday in a speech to the country’s National Assembly. The news comes soon after Venezuela legalized the cryptocurrency mining industry.

Are DEXs better off?
The sudden takedown of BitMEX, an institutional part of centralized crypto trading, raises questions about the viability of decentralized exchanges (DEXs).

CoinDesk’s Will Foxley reports the value proposition of decentralized platforms is that they are – at least in theory – wholly owned by their communities, rather than their investors or a C-suite of executives.

However, they are founded by real, live humans who are subject to the whims of law enforcement agencies. Are they next?

It seems like BitMEX’s takedown was wholly its own doing, by allegedly serving U.S. customers without proper authorization from the CFTC, and eschewing proper know-your-customer (KYC) requirements up until earlier this year. 

But without a figurehead like Chief Executive Arthur Hayes, can the same accusations be leveled against platforms like Uniswap – which create open markets without regulatory oversight that anyone can enter?

“For DeFi builders it might be relevant to have from the start a clear path towards decentralized governance similarly what Ethereum and Bitcoin is today, where there is no centrally controlled entity governing these protocols by design. In the end also remember who you are building for and make safe products for all stakeholders,” Stani Kulechov, co-founder of the Aave DeFi money market, told CoinDesk.

Others, like Robert Leshner, founder of DeFi lending platform Compound, even suggested regulators might find virtue in DeFi. Though time will tell.

For now, there could be apparent security in the limited size of the DEX subsector. The $11 billion DeFi market pales in comparison to the larger centralized exchange (CEX) market, Foxley notes. But the gap is closing.

CoinDesk’s Zack Voell reports September volume on DEXs recorded its third consecutive month of doubling. Aggregate trading volume on decentralized exchanges reached $23.6 billion in September up from $11.6 billion in August.

Coronavirus scare
The cryptocurrency and Asian stock markets sold off early Friday after U.S. Pres. Donald Trump announced he and his wife had tested positive to COVID-19. In a tweet on Friday, Trump said he and First Lady Melania Trump had begun their quarantine process. Bitcoin is also down by 1.9%, having fallen from $10,678 to around $10,400, at press time. The Australia ASX All Ordinaries fell  1.35%, while the S&P 500 futures fell about 2% on the news. “We will get through this TOGETHER!,” Trump tweeted.

Self sovereign identity
In today’s internet, most of us have made the Faustian bargain of trading agency for convenience. We trust Facebook with our log-in credentials to countless other sites, the photos of our family, the contents of our private messages, and troves of personal details that can be repackaged, exploited, and weaponized – in just one tiny example, arguably tipping the 2016 election to Donald Trump.

But most of us make that Faustian bargain. We hold our nose and click. We feel that unless we want to be an online hermit, there really is no choice. 

But what if we “owned our data,” meaning that instead of trusting the Googles and Facebooks with our precious data – a resource more valuable than oil – we are the custodians of our data, and we only share it when we choose, in certain contexts, and perhaps we can sell it or license it?

“You’re re-democratizing the internet,” says Drummond Reed, chief trust officer of Evernym, one of the organizations trying to make SSI a reality. “You’re pushing the power, literally, out to the peers.” Reed is no Pollyanna, and he doesn’t expect the Facebooks to vanish in the next decade, but he predicts that “we will see a pretty dramatic reshaping of the power distribution.”

Okay, but what would that actually mean from a user experience? SSI can be an abstract concept, making even Bitcoin look simple and easy to explain. It’s tough to visualize or appreciate.  So for this scenario, we’ll envision some ways that SSI – and ownership of your data – would change your (online) life. 

Welcome to a better internet.

Have an idea for what the future of the internet will look like, reach out to [email protected].