Welcome to another edition of The Scoop. The Scoop is like the Grayscale Bitcoin Trust, except instead of giving you a 45% discount on The Scoop, we give you a 100% discount on the Scoop and you’re not going to lose any money reading this newsletter

The Big Scoop

Let’s cut right to the chase with this week’s Big Scoop. Centralized crypto companies and exchanges need to submit to proof-of-reserve audits. The trustless nature of blockchains is both a blessing and a curse, and as more of the fallout from FTX reveals itself, investors are better left waiting on the sidelines right now until this all shakes out.

For now, here’s what you need to know.

A crypto lender Genesis is looking to raise $1 billion. The company lost $175 million in the FTX fiasco and also issued a loan to Three Arrows Capital, a VC firm that went under this year. That loan is worth $2.6 billion. It’s unlikely they will ever see that money.

The $1 billion Genesis is looking to raise may or may not belong to parent company Digital Currency Group. Grayscale, the company behind the most popular ETF in the world, is also a parent company of Genesis (don’t you feel like you’re reading Genesis’ DNA’s results right now??? We do!).

Genesis is also tied to the biggest news site in our industry, CoinDesk. With all of those relatives counting on more financing coming in, this could be huge for crypto and lead to another MASSIVE DUMP.💩💩💩

So what’s the moral of the Big Scoop? The same thing we always preach. Be the owner of your crypto and your data. If you keep any of it tied to a centralized company, it’s not yours. PERIOD.

PS… In other poopie news… an FTX exploiter dumped $200 million in Ethereum across 12 different wallets. Read about it below👇

The News

Why the FTX Contagion Might Just Be Getting Started

The fallout of FTX continues to send ripples through the industry.  

On top of the massive crypto crashes, many are worried that crypto giant Digital Currency Group could be in trouble following its lender Genesis being forced to pause loan originations and customer withdrawals.

Genesis lent $2.4 billion to now bankrupt Three Arrows Capital, and it is unlike they will get it back. Also, a few months ago, Genesis cut 20% of its staff, and the CEO, Michael Moro, left the company. 

Reports now say that Genesis is seeking an emergency $1 billion loan, stating FTX’s collapse is the cause for the turn of events. 

Even if Genesis receives the loan, it may or may not be owed to Digital Currency Group, their parent company. 

Many now predict that Genesis could be the next piece to fall in the long year of massive crypto collapses. This is because Genesis had $2.8 billion in total active loans at the end of Q3 2022 and DCG owns some of the biggest companies in crypto, including Genesis, Grayscale, and Coindesk.

However, some in the space aren't worried by this alarming news. 

Head of blockchain and crypto research at Uphold, Martin Hiesboeck, stated: 

"In the long run, it is unlikely that the digital asset space will be set back significantly by this." 

"The risk of contagion is now higher than ever, but it is, we believe, negligible. Don't forget how small the space still is. This is no Enron or Lehman moment. For most firms implicated in the scandal, from Sequoia to Tiger and Circle, the sums involved are pocket change."

The FTX saga appears far from over, but the space will continue to push through as it makes its way to the end of potentially the most challenging year it has faced. 

SExploiter Syphons $200 Million in ETH Connected to FTX

An exploiter drained hundreds of millions of crypto from FTX the same day the exchange filed for bankruptcy protection.

According to data from Etherscan, the exploiter moved a total of 180,000 ETH (around $200 million) to 12 crypto wallets Monday–each wallet receiving 15,000 ETH within minutes.

In total, the bankrupt exchange endured about $600 million of unauthorized withdrawals.

Experts believe that the exploiter was likely an insider with access to the exchange's cold wallets. Kraken's security team has claimed that they know the identity of the exploiter, as they used their personal verified account to pay for transaction fees.

Due to the rushed withdrawal, the exploiter lost a substantial amount of capital due to slippage and conversion fees attempting to cash out.

There are some that believe the attack is planning to subdivide it into smaller and smaller amounts to confuse investigators, a process known as "peel chaining." They also may be planning to use a mixing service to obscure which coins are theirs.

Some Ethereum users have begun sending coded messages to the hacker, requesting that they share some of the stolen ETH. Many of these users claim to have lost money due to FTX's collapse. 

At the time of writing this, all of the stolen ETH has yet to move from any of the 12 wallets.

Following the hack, the exploiter became the 40th largest holder of ETH. 

Chart.

The chart section of The Scoop is for all of you Web3ers out three who NEVER LEARNED TO READ😢😢 (or maybe you just don’t want to).

Here’s a timeline of events that breaks down the rise and fall of FTX. You know what they say: A picture is worth 1,000 words (and three consecutive features in The Scoop).

Fundraising In Web3.

Feel free to kick back, relax, and shake your money maker. It’s time to take a look at some of the fundraising announcements that captured the Web3 world’s attention this week 💲💸💰🧀:

• Archax raises $28.5 million to build an exchange-traded crypto fund.

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Education.

Crypto keeps going no matter where we are in the stages of contagion. There is literally no better time than right now to learn about the concept of proof-of-reserves audits it’s all over the crypto news, but you may not know what it means.

You’re about to find out in this week’s edition of the Study Space.

Why do exchanges use them? Why do traders and investors use them? Are they the reason that crypto projects are imploding? Do they facilitate the use of too much leverage?

It’s time to find out the answers:

• What are Proof-of-Reserves Audit?

Scoop Meme

The Final Scoop

The Final Scoop is…the fallout from FTX is far from over. There are so many little nitty-gritty details and connections between companies that are responsible for a lot of satoshis that we as a community are going to have to watch it all slowly unwind.

The good news is there will come a day (hopefully next week’s edition) where we can get back to covering more Web3-specific news content and not just news about the thievery of crypto that is supposed to belong to the individual.

Share The Scoop

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Thanks again for reading this edition of The Scoop.

See you next week.