Binance Brouhaha

We're already doing things a little differently by sending this out a day later thanks to the long weekend. So let’s keep the trend of changing things up a bit going and start this issue with a game called “Things That Don’t Mix.”?

?

1. Kristin Stewart and facial expressions

2. Alcohol and texting

3. Oreos and pickles (?!)

4. Customer funds and company revenues

Kristin Stewart’s facial expressions (or the lack thereof) might make the Twilight series extra laughable. Worst case, a drunk text rampage will annoy friends, family, or maybe an ex-lover, and Oreos and pickles are just flat-out disgusting. Commingling customer funds, however, could result in investors’ livelihoods vanishing into thin air – as we saw with FTX.?

This time, it’s Binance that’s under fire. In this week’s Triple Entry, we’re covering this story, Ledger’s “Recovery” service drama, and surprising crypto data from the Fed.?

We hope you enjoy this one!

P.S. A warm post-long weekend welcome to the?30 new subscribers?who decided to see what all the fuss was about. Frankly, we're as curious as you are.?

Binance Brouhaha: A Tale of Commingled Funds

Binance, the world’s largest crypto exchange, saw how successful FTX was with the customer-fund-commingling strategy that it decided to give it a whirl. According to a?report from Reuters , Binance has been doing the same thing it?accused FTX ?of late last year.

Three unnamed sources have spilled the beans, claiming that Binance commingled customer funds with company revenue in 2020 and 2021. The sums allegedly ran into billions of dollars, and this financial juggling act happened almost daily in accounts the exchange held at U.S. lender?Silvergate Bank .

Now, before we all start hyperventilating into paper bags, it's important to note that Reuters found no evidence that Binance client monies were lost or taken. But the fact remains that this alleged commingling of funds puts client assets at risk by obscuring their whereabouts. As John Reed Stark, a former chief of the SEC’s Office of Internet Enforcement, so eloquently put it, Binance customers shouldn’t “need a forensic accountant to find where their money is.”

Binance, of course, has vehemently denied these claims. Patrick Hillmann, Binance’s chief communications officer, took to Twitter to blast the report, calling it "weak" and full of "conspiracy theories." He stated that Binance keeps user and corporate funds on completely separate ledgers.

The controversy centers around Binance's stablecoin, Binance USD (BUSD). The report alleges that BUSD was used to credit customers' accounts when they were really depositing U.S. dollars.

“These accounts were not used to accept user deposits; they were used to facilitate user purchases” of crypto, said spokesperson Brad Jaffe. “There was no commingling at any time because these are 100% corporate funds.” When users sent money to the account, he said, they were not depositing funds but buying the exchange’s bespoke dollar-linked crypto-token, BUSD. This process was “exactly the same thing as buying a product from Amazon,” Jaffe said.

We hope these allegations are just that — allegations. Either way, we’re reminded that crypto still has some growing up to do regarding financial controls. However, it’s worth noting that this is primarily a traditional finance problem; if the funds were all on-chain, commingling them would prove much more difficult.?

Ledger's "Recover" Feature: A Recovery or a Relapse?

Let's talk about?Ledger , the Paris-based crypto hardware wallet company. They've been causing quite a stir with their new "Recover " feature. Now, you might be thinking, "Recovery? That sounds like a good thing, right?" Well, not everyone agrees.

Ledger's new feature was designed to allow users to store encrypted backups of their seed phrases with a set of three custodians. This means that if you lose or forget your seed phrase (which is like the master key to your crypto wallet), you can still restore your private keys. Sounds handy, doesn't it?

But here's the catch. This feature has been met with a wave of criticism from the crypto community. Why? Because it seems to contradict Ledger's previous assurances that private keys would never leave a user's device.

The critics argue that this new feature is not compatible with the concept of a hardware wallet, which is supposed to keep private keys securely ring-fenced. They worry that this could expose users to potential threats such as hacks of the custodians, data leaks from KYC providers, and law enforcement gaining access to Ledger users' data.

In response to the uproar, Ledger has decided to?delay the release ?of the "Recover" feature. They've also pledged to open-source as much of the Ledger operating system as possible. This is a step in the right direction, but it doesn't completely address the concerns raised by the community.

This whole fiasco has exposed a gap between blockchain ideals and technical reality. The crypto community values decentralization, self-sovereignty, and trustlessness. But in practice, these ideals are hard to achieve. Ledger's "Recover" feature is a prime example of this. It's a compromise between the autonomy of cold storage and the comfort of custodial storage. But is this a compromise that Ledger users are willing to make?

This story serves as a reminder that trust is a precious commodity in the world of crypto. Understanding the technology you're using and the potential risks involved is crucial. And as always, remember the golden rule of crypto: not your keys, not your coins.

Crypto in the Fed's Spotlight: A Dive into the "Economic Well-Being of U.S. Households in 2022" Report

One in ten Americans held or used crypto in 2022.

The stat itself isn't the most exciting part. This figure wasn't reported by a crypto exchange or analytics company, but by the Fed, in its "Economic Well-Being of U.S. Households in 2022" report.

That's right - the same Fed that oversees the traditional banking system that crypto poses an alternative to. They can't ignore it any longer.

According to the report, 10% of adults held or used cryptocurrency in 2022, a 2% drop from the previous year. This decline seems to be due to fewer people buying or holding cryptocurrencies as an investment, which fell from 11% in 2021 to 8% in 2022. This could be a response to the fluctuating values of cryptocurrencies.

The report also found that the use of cryptocurrency for financial transactions remained steady from the previous year, with 3% of adults using crypto for transactions. The top three reasons for using crypto for transactions were: the recipient preferred cryptocurrency, sending money faster, and privacy.

Interestingly, the report found a correlation between people's willingness to take financial risks and their use of cryptocurrency. Those who were very willing to take financial risks were more likely to use cryptocurrency, either as an investment or for transactions.

The report also highlighted demographic and socioeconomic differences in cryptocurrency use. Younger adults and men were more likely to use cryptocurrency, both for investment and transactions. Higher-income adults were more likely to hold cryptocurrency as an investment, while lower-income adults were more likely to use cryptocurrency for financial transactions.

So, what's the big deal about the Fed reporting on this data? Well, it shows that cryptocurrencies are becoming a significant part of the financial landscape. The Fed's interest in crypto suggests that digital assets are moving from the fringes of finance into the mainstream.

Spotlight????- Bitwave Quick Hits

As a follow up to our story on Binance, I chatted with my Bitwave colleague and fellow crypto CPA Joseph D. for a “quick hit” on the subject. You’ll probably see more of these in the future. Expect (on average) a less-than-ten-minute video where we quickly review a trending topic in the space. Check it out below!?

The Water Cooler ??

Things worth talking about at the office water cooler…if you 1) talk to people, 2) still work in an office, and 3) have a water cooler.

???????F3 - Featured Funding Finds:?Transak Closes $20M Series A

The headline:? Transak , a London-based web3 payment and onboarding infrastructure provider, recently closed a $20M Series A led by CE Innovation Capital with participation from other prominent web3 investors like SBI Ven Capital, Sygnum, Azimut, Third Kind Venture Capital, and more. The round saw additional investment involvement from angel investors like Jan Hammer of Index Ventures, Charles Delingpole of ComplyAdvantage, and Sandeep Nailwal of Polygon.

Why we noticed:?First, what exactly is a “web3 payment and onboarding infrastructure provider?” In this case, the “onboarding” refers to onboarding Web2 users to Web3, enabling fiat-to-crypto payments.?Transak , in its own terms, is “a developer toolkit enabling users to buy or sell crypto in any app, website, or web plugin.” And that’s actually a lot more helpful for easing the transition from Web2 to Web3 than it may sound.

For brands looking for easy bridges between fiat and crypto payments, Transak offers their embeddable infrastructure and promises to take care of all the KYC requirements, risk monitoring, payment methods, and on- and off-ramps for fiat-crypto transactions.?Web3 brands that already trust Transak include crypto wallets MetaMask and Coinbase Wallet and the open-source liquidity protocol Aave.?

This has implications not just for Web3 brands trying to bring on more fiat customers but also for the more Web3-curious brands looking to add crypto payment functionality. Transak founders Sam Start and Yeshu Agarwal recognize the pernicious problem of Web3’s generally…rougher UX compared to Web2. You’ll have a hard time unlocking that golden ticket to the next billion users of Web3 if you’re asking Web2 users to overlook how clunky the whole experience is relative to what they’re used to. Transak’s infrastructure at least partially smooths some of these wrinkles.?

With this Series A, Transak plans to expand further into global markets - they’re already established as a crypto asset firm in their UK homeland with appropriate licensure to be a virtual asset service provider in Poland. New sights are set on the Middle East and the Asia-Pacific region. Additionally, they’ll expand their suite of onboarding solutions to include Web3 games and financial applications.

Extraordinary Items

This one's for the accountants.

All righty, you're all caught up.

“Calc”-you-later, ???

Trevor