Web 3 With FTC for February 10th - " DeFi Unites, Crypto Exchanges Reign, ETH Staking, Small Bitcoin Addresses Soar, DCG Shakes Up, Signature Bank Lawsuit, ConsenSys Backs IRS Lawsuit, JPMorgan Predicts Crypto & Blockchain Boom

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Episode 7 • 10th February 2023 • Fintech Confidential • DD3, Media

"Welcome to Web3 with FTC For February 10th by Fintech Confidential, the place where we keep you up-to-date on the latest developments in the world of Web3, Crypto, Blockchain, NFTs, and Fintech.

"Get ready for some fresh and thrilling insights on the crypto and blockchain world right here on Web3 with FTC! No more stale, regurgitated stories. We've got the hottest and newest updates for you."

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This is a production of Diamond D3 Media, with All Rights Reserved. This is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice. We strive to provide accurate and up-to-date information but will not be responsible for any missing facts or inaccurate information. You comply and understand that you should use any of this information at your own risk. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.

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Tedd Huff: President & Founder of Diamond D3, a professional services consulting firm focused on global payments and marketing. He is also a video podcast host and producer of Fintech Confidential and Head of Corporate Strategy at Corvia.

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Welcome to Web3 with FTC by Fintech Confidential, the place where we

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keep you up-to-date on the latest developments in world of Web3,

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Crypto, Blockchain, NFTs, and Fintech.

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"Get ready for some fresh and thrilling insights on the crypto and blockchain

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world, right here on Web3 with FTC!

Speaker: 00:01:08

No more stale, regurgitated stories, we've got the hottest

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and newest updates for you."

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we've got some juicy insights from the folks over at JPMorgan.

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They're saying that despite a bit of a slowdown in the crypto trading world,

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electronic trading activity is set to skyrocket this year!.The Global Head

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of FICC e-Sales, Scott Wacker, says we're about to witness a revolution

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in the electronic and automation space, with clients getting more and

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more choices in execution options.

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It's all about the Dee Fi space!

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Over 30 projects have teamed up to promote the beauty of Web3 - it's

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permissionless, interoperable, and here to take on traditional finance.

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That's right, Dee Fi is coming for you, traditional finance!

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But don't worry; it's all in the name of providing safer,

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more transparent financial tools to people all over the world.

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And in case you were wondering, despite the recent bankruptcy drama

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in the centralized crypto world, users still prefer exchanges over wallets.

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But the demand for better security and convenience in wallet

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solutions is growing by the minute.

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Ethereum just had a major upgrade, and the testnet has processed its

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first ETH staking withdrawals.

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Some traders think this will encourage more staking, while

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others are predicting a price drop.

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The market is always a wild ride.

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Small Bitcoin addresses are rapidly growing, indicating increased interest

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in the king of cryptocurrencies.

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Keep an eye on that, because it could have a big impact on the market.

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We also have some big changes happening at the Digital Currency Group.

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They're selling off their Genesis trading and lending arms, but

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unfortunately for Earn users, that means their assets might not be recovered.

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It wouldn’t be Web3 without some legal drama!

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A class-action lawsuit has been filed against Signature Bank over the alleged

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commingling of FTX customer funds.

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And in a separate case, a Tennessee couple is suing the IRS over taxing

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staked cryptocurrency, and they just received support from ConsenSys.

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This one's headed to a federal appellate court for consideration

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Stay here for the rest of the story, right here on Web3 with FTC."

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A major development in the decentralized finance (DeFi) ecosystem, where over

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30 DeeFi projects have come together to showcase the incentive behind

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operating trustless, interoperable, and permissionless platforms.

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This collaboration is an effort to counteract the negative sentiments

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built in 2022 due to numerous CeeFi ecosystem crashes and to

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rebuild trust among investors.

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For 24 hours from Feb.

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6 to 7, these DeFi protocols joined in an initiative to “permissionlessly”

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share tweets from other protocols.

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The projects participating in this campaign include Yearn finance, Maker

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Dao, SushiSwap, and Aavee, among others.

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The projects collaborating in the campaign defined the “spirit” of DeeFi

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as a more collaborative ecosystem, rather than a competitive one.

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Jared Grey, the CEO of SushiSwap, said DeeFi is being built to challenge the

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current status quo of known financial frameworks, which historically create

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barriers and reduce economic freedom.

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He added that the responsibility to portray the true message of DeFei

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comes first from within the space.

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Mamun Rashid, the Chief Marketing Officer at Maker Dao said that to realize

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the “full potential” of DeeFi, there needs to be a collaboration between

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the ideas and expertise in the space.

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He said, "Together, we can push the boundaries of traditional finance and

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build a more inclusive and accessible financial system through DeeFi."

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Despite the mainstream acceptance of DeeFi, it still has a shaky

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reputation due to its many exploits.

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Over the last year, the DeeFi space was a major target for exploits, leading

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to a 47.4% rise in security losses in 2022 compared with the previous year,

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which totaled $3.64 billion in losses.

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However, the space started the year with significant growth,

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according to a Dapp Radar report.

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In January, a new $150 million ecosystem fund was created by Injective

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to boost DeeFi and Cosmos adoption.

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This collaboration between over 30 DeeFi projects is a significant

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step in promoting the permissionless and interoperable nature of Web3.

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It showcases the collaborative spirit of the DeeFi ecosystem and sends

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a strong message to the world that DeeFi is here to challenge the current

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status quo of traditional finance and to provide more equitable, safer,

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and transparent financial tools and products to a global audience.

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We hope that this initiative will help rebuild trust among investors

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and pave the way for a more secure and stable DeeFi ecosystem.

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Next up

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In a recent research report by imToken, which found that despite the recent

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collapse of crypto heavyweight FTX, and other Bankruptcies; Crypto Users

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still like Exchanges more than Wallets.

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According to the poll, 63% of respondents believe trading on exchanges is easier or

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less expensive than trading on wallets.

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Notably, 38% of users thought wallets were less secure than exchanges,

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citing worries about being hacked or losing cryptocurrency by accident.

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However, more than 40% of the customers surveyed said they would spend up to $100

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for a wallet to address these problems.

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While more than 25% of users surveyed believe that people will

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begin converting to self-custody in the next 5 years, a quarter of

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users think that custodial solutions will still be the norm in 10 years.

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The majority of poll respondents, 51%, said they would choose a new

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wallet if it offered better security with multifactor authentication.

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Despite the difficult last quarter for centralized crypto platforms, the report

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reflects surprising user preferences.

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According to a previous study by Chainalysis and Bitfinex, the number

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of thefts and the total amount taken from centralized exchanges

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has decreased by around 58%.

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despite the recent collapse of FTX and other centralized crypto platforms, users

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still prefer exchanges over wallets due to ease of use and perceived security.

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However, there is still a significant demand for better security and

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convenience in wallet solutions.

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the latest developments in the Ethereum ecosystem as the

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Zhejiang testnet processes its first ETH staking withdrawals.

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The upgrade on the Zhejiang testnet was the first of three dress rehearsals for

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the much anticipated Shanghai hard fork.

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The test network successfully simulated withdrawals of staked ether (ETH),

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bringing the second-biggest blockchain closer to its transition to a

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fully-featured proof-of-stake network.

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The Zhejiang testnet is the first of three testnets that will simulate the

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Shanghai upgrade, allowing developers and users to test the code changes to their

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applications in a low-stakes environment.

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The next testnet upgrade will happen in the coming weeks with

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the Sepolia and Goerli testnets.

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The Shanghai upgrade is the first hard fork for Ethereum since its transition

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to a proof-of-stake network in September.

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The transition made Ethereum more energy-efficient and secure, as

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cryptocurrency is staked on the blockchain to help secure transactions.

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However, until the Shanghai upgrade, the staking mechanism is one-way - users

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can put ether in but can't take it out.

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The upgrade has become a highly anticipated event for the

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crypto community, with traders paying close attention to its

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potential impact on the market.

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Some traders believe that the upgrade will encourage more staking, while

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others anticipate a price drop due to sell pressures when stakers rush

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to withdraw their long-held funds.

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Data from on-chain analytics firm Santiment shows that the recent

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rise in the number of small Bitcoin addresses on the network has increased

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by 620,000 new small addresses on the network since the 20th of last month.

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The indicator in question is the "BTC Supply Distribution," which measures the

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number of Bitcoin addresses that fall inside each wallet group in the market.

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The wallet group of interest here is the 0 to 0.1 coins band, which covers all

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small investors in the Bitcoin market.

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This data can tell us about the general interest in the crypto currency and

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whether it's attracting new users.

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In the second half of 2022, the Supply Distribution's value for the 0 to 0.1

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coins cohort moved sideways, indicating a lack of new small investors entering

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the network due to the dull bear market.

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However, following the collapse of crypto exchange FTX in November, the

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number of wallets falling into this band saw a rapid rise, likely due to

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the volatility and potential bottom.

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Although the increase didn't last long, the indicator has seen fresh

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growth again since the start of 2023.

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Around 620,000 new Bitcoin addresses belonging to small investors

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have appeared since BTC reclaimed the $20,000 level in January.

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This suggests that the latest rally has encouraged new investors to enter the

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market, and trader optimism has returned to the Bitcoin network this year.

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Know that the rise in small Bitcoin addresses on the network is a positive

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sign for the market and shows increased interest in the cryptocurrency.

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As always, it's important to keep an eye on these indicators and

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how they may impact the market.

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with key creditors that would see the sale of the crypto lending

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and trading arm of the company.

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Barry Silbert’s Digital Currency Group (DCG) will exchange its existing

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$1.1bn promissory note for convertible preferred stock issued by DCG.

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DCG will also refinance existing 2023 term loans with a new term loan made payable

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to creditors worth approximately $500m.

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Genesis Global Trading will be contributed to a holding company called Genesis

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Global Holdco, effectively selling off the crypto lending and trading arm of Genesis.

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Crypto exchange Gemini will contribute $100m to its Earn clients under the deal.

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The agreement is set to maximize value for all Genesis clients and

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stakeholders, and will bring all Genesis entities under one umbrella.

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However, the deal means that Earn users will not recover their assets.

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The shake-up is part of the solution for Genesis’ bankruptcy under

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Chapter 11 of the US Bankruptcy Code, which was filed on January 19.

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Signature Bank, known for its crypto-friendly services, has been hit

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with a class-action lawsuit alleging its involvement in the operations

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of defunct crypto exchange FTX.

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The lawsuit claims that the bank permitted the commingling of FTX customer funds

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within its blockchain-based payments network and aided and abetted the FTX

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fraud and breach of fiduciary duties.

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Algorithmic trading firm Statistica Capital filed the lawsuit, stating

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that the bank was aware of its funds being intended for FTX and

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failed to prevent their transfer into Alameda-controlled accounts.

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Statistica further alleges that Signature Bank publicly promoted FTX, facilitated

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the exchange's fraud, and failed to close its accounts despite knowing

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they were being used in violation of the firm's terms and fiduciary duties.

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The firm claims that the bank's due diligence obligations revealed the FTX

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fraud, including during the onboarding process and ongoing monitoring of the

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exchange's accounts and operations.

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Signature Bank has responded to FTX's collapse by stating that the crypto

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exchange's deposits were less than 0.1% of its overall bank deposits and that

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it would reduce its deposits tied to crypto assets by up to $10 billion.

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More recently, Binance reported that the bank no longer supports

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crypto transactions below $100,000.

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The class-action lawsuit against Signature Bank highlights the increased scrutiny

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of financial institutions and their involvement in the crypto industry.

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the recent support from ConsenSys for an ongoing lawsuit challenging the IRS'

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ability to tax staked cryptocurrency.

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A Tennessee couple, Joshua and Jessica Jarrett, filed a lawsuit against

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the IRS in 2021, alleging that the federal income taxes levied on their

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staked Tezos should not be considered taxable income under federal law.

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Midway through the lawsuit, the IRS offered to issue a refund, but

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the couple refused, hoping for a court's assurance that the issue

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wouldn't arise in the future.

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However, the case was dismissed in October by a federal judge.

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Many in the crypto community were hoping the case would provide

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clarity on the taxation of staking rewards, which millions of users

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generate daily through proof-of-stake blockchains such as Ethereum.

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Staking involves locking up cryptocurrency with a network in exchange for

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newly generated cryptocurrency.

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ConsenSys, the blockchain technology company started by Ethereum co-founder

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Joe Lubin, is closely monitoring the case as the Shanghai upgrade will

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soon allow Ethereum users to withdraw ETH held through its staking program.

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Over $27 billion worth of funds are currently staked with the network,

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and with increased liquidity, more people are expected to start staking,

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making the proper tax treatment for staking rewards increasingly important.

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The Jarretts are currently appealing the dismissal of their case and ConsenSys will

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provide financial support for the effort.

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The core argument is that staking rewards should be considered "created property"

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under federal tax code and not taxed until sale, similar to a farmer who grows crops.

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However, most staking rewards on Ethereum are generated through a third party,

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such as centralized crypto exchanges like Coinbase, Binance, and Kraken.

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The case will now be decided by a panel of federal appellate court judges.

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To cap it off , the lawsuit challenging the IRS' ability to

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tax staked cryptocurrency has received support from ConsenSys.

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The case, brought forward by a Tennessee couple, will provide clarity on the

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taxation of staking rewards and has the potential to impact millions

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of users generating cryptocurrency through proof-of-stake blockchains.

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The case is now headed to a federal appellate court for consideration.

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In a recent survey conducted by JPMorgan, the global banking giant, shows that

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institutional traders believe that cryptocurrency and blockchain technology

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will become more mainstream in 2023.