SEC Does Due Diligence on FTX Investors (Who Should've Done Due Diligence)

January 6, 2023

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Welcome to The Node. This is Daniel Kuhn, here to take you through the latest in crypto news and why it matters. In today's newsletter:

In the news: The SEC is examining FTX investors' due diligence proceedures . Digital Currency Group will close a wealth management division "HQ." And Huobi confirms 20% headcount reduction.
The takeaway: Polygon and Solana are two of the most used "scalable" blockchains. Developer Tanner Philip compares both to see which is better to build on.

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Secure Your Seat

FTX Fingerpointing

The U.S. Securities and Exchange Commission (SEC) is examining whether investors in bankrupt crypto exchange FTX correctly followed due diligence procedures and maintained their fiduciary duty. It's unknown which companies are under investigation. In December, the SEC charged former FTX chief Sam Bankman-Fried with defrauding equity investors who injected some $1.8 billion into the company. Meanwhile, SBF is arguing he should retain control of around $450 million in shares of financial trading app Robinhood purchased through a shell company. New FTX CEO John Ray said the shares should be frozen until they can be divided up fairly among FTX creditors.

Digital Ditch

Digital Currency Group, the cryptocurrency conglomerate whose Genesis Global Trading division just announced more layoffs, said it's shutting down a wealth-management division called HQ. "Due the state of the broader economic environment and prolonged crypto winter presenting significant headwinds to the industry, we made the decision to wind down HQ [on Jan. 31]," the company said. The little known HQ reportedly had more than $3.5 billion of assets under management. Separately, JPMorgan has downgraded Silvergate Capital after its bleak 4Q results while Cathy Wood, once a vocal backer of "Bitcoin's bank," has offloaded shares.

Huomongous Issue?

Hours after Huobi confirmed a 20% headcount reduction, the exchange experienced outflows of $64 million, according to Nansen. Meanwhile, Justin Sun, the founder of the Tron blockchain who sits on Huobi's advisory board, sent a $100 million backstop in USDC and USDT to the exchange from Binance. Huobi's key to success is to "Ignore FUD and Keep Building," Sun tweeted. Huobi's bitcoin reserves are down 90% in the past year, though there are ore pointed concerns about Huobi's HT token, which is used as a reserve asset by the exchange. Tron's TRX, the 18th-largest token by market capitalization, has also taken a beating.

Sound Bites

"We want to put customers in control of their money."

– Block's bitcoin wallet lead Max Guise, discussing the fintech firm's multi-sig system, on CoinDesk TV's "First Mover"

The Takeaway: Solana vs. Polygon

(Getty Images)

I've been working on consumer products for about a decade, having contributed to teams that have built and scaled apps to hundreds of millions of users. For the last six years I've been 100% focused on crypto. A large part of that has been working on scaling solutions for large-scale, consumer-crypto products.

I've been part of teams that have built and launched products on Ethereum, Stellar and Solana, and have evaluated most of the other major blockchains and layer 2 scaling options, which has included spinning up basic proof-of-concepts. In particular, I've looked deeply at the benefits and tradeoffs of Polygon – the dominant scaling option for Ethereum today.

Web2 developers planning to jump into Web3 often wonder which blockchain they should start with. Most of these discussions end up focusing on Solana and Polygon. It's a debate that's only grown more heated in the weeks since Sam Bankman-Fried's crypto trading empire collapsed, given he was one of Solana's most prominent supporters.

Although many see the downfall of FTX as a potential death knell to Solana, the network remains a promising technological solution to blockchain's scaling issues. Even Ethereum co-creater Vitalik Buterin has noted the strength and gumption of developers building on Solana. And, developer activity is one of the best leading indicators of value creation over time.

Given this I thought it would be helpful to share my perspective as someone experienced in different crypto networks on the pros and cons of Solana and Polygon. The three criteria that are both critically important and materially different between the two chains: performance, approach to scaling and security.

Read the full article here.

– Tanner Philp, senior blockchain developer and current head of operations at Solana-based wallet Code.

Gate US: A New, Compliance-Centric Crypto Exchange Offering an Alternative Option for Investors in the U.S.

As the demand for trustworthy and comprehensive trading services increases in the wake of the FTX collapse, Gate US is looking to fill the void after obtaining several licenses and approvals, with plans to become authorized to operate in more US states before commencing services in 2023. Continue here.

*This is sponsored content

Off-Chain Signals

HTC's New Mixed Reality Headset Is 'Gateway' to Metaverse: CES 2023 (Decrypt)
China Reverses Course on NFTs With Platform Launch (The Defiant)
Binance's stablecoin BUSD hasn't always been 1:1 backed, report (Protos)
No One Will Escape the FTX Fallout (Wired – soft paywall)
Hong Kong Crypto Mogul Aims to Raise $1 Billion for Web3 Fund (Bloomberg – paywall)
What's Next for Bitcoin Lightning? (etonec)