Hello everyone and welcome back to chain reaction.
Last week we talked about $4.5 billion in new crypto funds from a16z. This week we’re talking about the arrest that’s making everyone in the NFT space sweat.
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crimes of the future
The crypto space has evolved so rapidly in recent years that builders in general seemed to believe that existing rules don’t apply to them. Well, after years of walking at a snail’s pace, US prosecutors seem to feel it’s time to challenge that perception.
This week, the US Attorney’s Office in the Southern District of New York arrested and charged a former OpenSea executive who used his position to advance NFT projects to be listed on the marketplace’s homepage. Community members discovered his actions by following his activities on public blockchains.
I would have liked to rant about this during the podcast, but news broke out during the recording, so I’ll leave you with some thoughts here.
The arrest came as a pretty massive shock to people in the NFT space, who generally believed that Nate Chastain had acted unethically, but that it couldn’t be “insider trading” because NFTs weren’t securities. This is a framing that has been espoused by many, including Chastain’s boss at OpenSea, who fired him.
“I think it was mislabeled as insider trading. We do not consider NFTs to be financial assets, so that is not the case. That’s a very specific term for a very specific thing,” OpenSea Devin Finzer told Decrypt in September.
There are a great many people who are reading the SDNY’s press release very closely, which states that Chastain is specifically charged with “wire fraud and money laundering in connection with a plan to commit insider trading in non-fungible tokens.” They specifically describe NFTs as “digital assets” later in the publication. It’s also worth reiterating that the DOJ — not the SEC — is charging him, even though it’s the bureau’s Securities and Commodities Fraud Task Force that is handling the case.
Now, why don’t crypto people want NFTs to be classified as securities? Well, there is a lot of existing regulatory guidance out there, and most believe that if NFTs were unilaterally subjected to securities law, it would basically turn the industry on its head; It would certainly raise the barrier to entry for creating NFTs and limit much of the experimentation currently taking place in space.
Another important reason why it would be bad if NFTs were treated as securities is that it would mean that a great many people have been doing illegal things for a very long time.
The NFT space has weathered this recent crypto bull run with no meaningful regulation coming its way. With NFT volumes showing signs of slowing, there are concerns that more regulation could be just around the corner.
the latest pod
What’s up Anita is here to bring you a preview of the latest episode of our Chain Reaction podcast where we unpack the latest web3 news block by block for the crypto curious.
This week we talked about Coinbase’s new approach to what is possibly one of the most daunting aspects of corporate life – performance reviews. Our colleague Amanda, wrote about how the crypto exchange is trying to mimic Ray Dalio’s hedge fund, Bridgewater Associates, by allowing employees to provide each other with real-time feedback and ratings. Is this part of the technology’s descent into a Black Mirror-style reality? Tune in to hear our thoughts.
We also rounded up two recent crypto comeback stories, one from the founder and CEO of OnlyFans, who left the company after trying to ban sexually explicit content from the platform, and one from the architect of the highly unstable stablecoin Terra.
Our guest this week was Outdoor Voices founder Ty Haney, who shared details about her move from athleisure to crypto with her new venture, Try Your Best. Haney broke the news on our podcast that the startup just received its second round of institutional funding.
Subscribe to Chain Reaction Apple, Spotify or your alternative podcast platform of choice to keep up with us each week.
follow the money
Where startup funds are moving in the crypto world:
- Blockchain business startup from New York digital asset made a strategic investment of unknown size from Japanese banking giant SBI Holdings.
- InfoStonesa blockchain infrastructure provider, snagged $66 million in a round led by SoftBank and GGV.
- Indian music NFT startup FanTiger Raised $5.5 million for its seed round led by Multicoin Capital.
- living citiesa metaverse-focused social startup co-founded by Foursquare founder Dennis Crowley, has raised $4 million in early-stage funding led by DCVC.
- Zimbabwe FlexID received an undisclosed amount of funding from Algorand for its blockchain-based identity system for sub-banks.
- Web3 company for augmented reality games Yes, you raised $36 million in funding for its Series A led by Bain Capital Crypto.
- Village Studio raised $2.3 million in a round led by Animoca Brands for its NFT-based Playken avatars.
- Web3 Payment API merge raised $9.5 million in seed funding led by Octopus Ventures.
- GoSatsan India-based bitcoin rewards platform, raised $4 million in a pre-Series A funding round from investors including Y Combinator, Accel, and Gossamer Capital.
- DAO management platform Utopia Labs completed a $23 million Series A led by Paradigm.
the week on the web3
It’s been an unusually quiet week in web3, and our team members in the US took some time to enjoy the rare, uneventful long weekend. Still, some great figures have been making waves in the room, for better or for worse.
- OnlyFans founder Tim Stokely is moving to crypto after leaving the company last December following controversy over his push to ban sexually explicit content from the platform. anita written about the new “family-friendly” NFT startup he is launching alongside another former OnlyFans exec that will allow people to buy, sell and trade virtual cards with influencers and celebrities.
- NFT platform OpenSea fired Nate Chastain, its head of product, back in September after he was accused of front-running trades on the platform. Now he has been arrested and charged with insider trading; Lucas has the details.
Here’s some of this week’s cryptanalysis, available to read on our subscription service TC+ (written by TC’s Jacquelyn Melinek):
VC funding for crypto projects fell in May, but many investors remain optimistic
VC funding in crypto fell month-on-month from April to May, but many investors are not concerned. “It’s time for investors like us to buy,” Stan Miroshnik, partner and co-founder of 10T Holdings, told TechCrunch. The pace of capital deployment could be more measured as investors and founders alike become more calculated, but VCs will continue to have robust levels of activity, Miroshnik said. Even as a gloomy mood prevails in digital asset markets, true crypto-native funds will continue to invest heavily, Saurabh Sharma, Jump Crypto’s head of investments, told TechCrunch.
Can crypto remain decentralized as crypto becomes more mainstream?
Whether they are first-time buyers of cryptocurrency or people learning more about NFTs, Bitcoin and the general crypto ecosystem, awareness of crypto has been increasing around the world. But as it gains momentum, regulators worldwide will continue to watch the space more closely, but the headline speaks for itself: what does this mean for the future of crypto? A number of founders and executives from the industry commented on this.
Longtime bitcoiner Dan Held says this “crypto winter” won’t be as tough as others
As crypto markets continue to decline, some veteran market participants like Dan Held, director of growth marketing at crypto exchange Kraken, are not worried. While there is much talk in the community of a crypto winter, Held said the mood for this current market cycle is different. While he — and many others — have weathered major market cycles over the years, the narratives have shifted wildly thanks to more prominent institutional players and massive amounts of capital pouring into the space.
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