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CeFi vs. hackers

KuCoin got hacked

While crypto news outlets were dominated by DeFi headlines since this summer, the biggest news of the last two weeks came from centralized finance space.

More than $280 million worth of different cryptocurrencies were stolen from Singapore-based exchange KuCoin, in one of the largest hacks in crypto history. Shortly after the attack, the company announced that exchange’s insurance fund will cover all the loses, so the trading platform will continue operating as normal.

The incident raised serious questions about censorship-resistance of many DeFi projects that quickly froze hacker’s funds via different mechanisms. Among protocols that censored attacker’s addresses or invalidated his tokens are Tether, Ocean Protocol, Ampleforth, Covesting, Velo, SilentNotary, Orion Protocol, Kardiachain, and Aleph. Many small projects had to freeze stolen funds in order to stop the hacker from dumping a high percent of a token’s total supply on a market, which could cause a huge price crash due to lack of liquidity.

A week after the massive hack, KuCoin’s CEO Johnny Lyu announced that the attacker was identified and the company is working with law enforcement agents.

CeFi vs. regulators

BitMEX, sieged by regulators

U.S. financial regulator CFTC charged owners of crypto derivatives exchange BitMEX for operating an unregulated trading platform and violating the Bank Secret Act by not implementing strict know-your-customer (KYC) and anti-money laundering (AML) programs.

Despite criminal charges from the Department of Justice, BitMEX committed to operating as normal, including processing withdrawals and trade orders. The company has also denied all allegations in its official post.

The news triggered a serious price correction in the crypto market, and more than $400 million worth of BTC were withdrawn from the platform in the first 24 hours since charges have been announced.

BitMEX became a popular trading platform in 2016 after introducing perpetual swaps, a derivative product that is similar to a traditional futures contract, but with no expiry date. BitMEX allowed its customers to use 100x leverage, which drew attention of many traders that wanted to speculate on Bitcoin price movements.

BitMEX has long claimed that it does not serve U.S. customers, its parent firm HDR Global Trading is listed in Seychelles, and its co-founder Arthur Hayes has publicly joked that Seychelles is cheaper to bribe than the United States.

In other news

  • Decentralized exchange Uniswap surpassed American crypto exchange Coinbase by monthly trading volume in September, according to The Block Research. While Coinbase reported $13.6 billion in monthly trading volume, Uniswap accounted for $15.4 billion. Additionally, the DEX-to-CEX ratio rose from 6.06% to 13.9%.

  • MetaMask, the popular Ethereum wallet with more than 1 million monthly active users, introduced token swaps directly within the app. The new feature is already available to Firefox users, and will be added to other platforms soon. The liquidity sources for the new token swap feature will be multiple DEXes such as Uniswap, Airswap, Kyber, 0x, and 1inch.

  • Eccentric Crypto-bull John McAfee has been arrested in Spain to be extradited to the U.S. on allegations of tax evasion. At the same day, the U.S. Securities and Exchange Commission (SEC) filed charges against McAfee for his past promotion of initial coin offerings (ICOs). The cyber-security expert has been often accused in accepting large fees to promote ICOs without a proper disclosure, according to Decrypt.

  • US IRS continues its attempts to tax cryptocurrency users by signing two firms - Chainalaysis and Integra FEC - to develop tools that can help trace transactions made with privacy-oriented coin Monero (XMR). At the same time, New Zealand’s tax agency IRD started requesting crypto companies to hand over their customer details, including the value of their crypto assets.

  • UK’s Financial Conduct Authority (FCA) has banned the sale of crypto derivatives and exchange traded notes (ETNs) to retail investors due to the harm they pose. The new regulation will come into effect in January 2021. Critics argue that the ban will drive U.K. retail investors to unregulated exchanges with fewer protections.

  • Ethereum’s DeFi ecosystem has recently seen ~$1.5 billion in Bitcoin locked up. Via synthetic bitcoins such as Wrapped Bitcoin and renBTC, users around the world have been moving their coins to the blockchain created by Vitalik, motivated by the latest DeFi frenzy. Furthermore, a user noted that Bitcoin’s total value locked in Ethereum is around 130 times the amount locked in the Lightning Network — a layer-2 protocol built on top of Bitcoin.

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