In this issue:

• New Data Published on 2022 Crypto Exchange Trading Volume, NFT Royalties

• Blockchain Development Firm Integrates Avalanche with Major Cloud Provider

• Governments of El Salvador and Nigeria Take Steps Toward Crypto Adoption

• DOJ Enforcement: NFT Rug Pull, Insider Trading, Crypto Fraud and Theft

• CFTC Action Alleges Digital Asset Market Manipulation on DeFi Exchange

• New Data Released on Crypto Crime Threats; Wallet Provider Warns of New Scam

New Data Published on 2022 Crypto Exchange Trading Volume, NFT Royalties

According to recent reports, Binance, currently the world’s largest cryptocurrency exchange by trading volume, controlled 92 percent of global bitcoin trading volume at the end of 2022, as compared to 45 percent at the beginning of last year. The increase in bitcoin trading volume on Binance is reportedly attributable to its move to eliminate trading fees in the beginning of the summer and the collapse of the cryptocurrency exchange FTX.

According to reports, cryptocurrency newsletter MilkRoadDaily recently shared data on the total royalty income earned by various non-fungible token (NFT) projects. Yuga Labs had total royalty income of $107.8 million from three non-fungible token (NFT) projects, including $49.9 million from its Otherdeed for Otherside project. Yuga Labs’ first NFT collection, BAYC, reportedly earned $32.3 million, while its MAYC collection earned $25.6 million. Other NFT collections that reportedly topped the list of royalty income earned include Azuki ($41.5M), CloneX ($27.7M), Moonbirds ($27M), Doodles ($17.1M), RTFKT MNLTH ($16.5 million), NFT Worlds ($12.8 million), and Beanz ($11.2 million).

In other news, a major U.S. financial services firm recently announced an accelerator program that “will harness Web3 technologies on the Polygon blockchain, forging new territory by connecting artists with mentors and fans in an exclusive development program.” According to a press release, the program will begin in the spring of 2023 by preparing five artists to “build (and own) their brand through Web3 experiences like minting NFTs, representing themselves in virtual worlds and establishing an engaged community.” The announcement was made alongside the blockchain application development company Polygon Studios.

For more information, please refer to the following links:

Blockchain Development Firm Integrates Avalanche with Major Cloud Provider

According to a recent press release, blockchain development firm Ava Labs has launched “new infrastructure features” on a major cloud provider, “including validator tools for compliance use cases.” The press release notes that the cloud provider “supports Avalanche’s infrastructure and dApp ecosystem, including one-click node deployment” and “Avalanche node operators can run in … GovCloud for FedRAMP compliance use cases — a vital capability and a pre-requisite for enterprises and governments.” The press release further notes that the cooperation between Ava Labs and the cloud provider “makes it easier for more people to launch and manage nodes on Avalanche, giving the network even more strength and flexibility for developers.”

For more information, please refer to the following links:

Governments of El Salvador and Nigeria Take Steps Toward Crypto Adoption

According to reports, this week El Salvador, which became the first country to use bitcoin as legal tender in 2021, passed legislation providing the framework for a bitcoin-backed bond called the “Volcano Bond” that reportedly will be used to pay down sovereign debt, create bitcoin mining infrastructure, and fund the construction of a proposed “Bitcoin City,” a renewable crypto-mining hub powered by hydrothermal energy from the nearby Conchugua volcano. The bonds have been targeted to raise $1 billion for the country, with half of it going into building the special economic zone. The bill also includes a legal framework for non-bitcoin digital assets and creates a new regulatory agency that will be in charge of applying securities laws and providing protection from bad actors.

The “Nigeria Payments System Vision 2025” report was recently published by the Central Bank of Nigeria (CBN). In it, the CBN declares Nigeria’s readiness to accept private stablecoins, says that stablecoins are likely to become a successful payment mechanism in the country, and considers the development of a regulatory framework for stablecoin use. The report also addresses the regulation of initial coin offerings (ICOs) and, while acknowledging the current absence of ICO regulation and related investor losses, notes the potential for responsible ICO fundraising, peer-to-peer lending and crowdfunding.

For more information, please refer to the following links:

DOJ Enforcement: NFT Rug Pull, Insider Trading, Crypto Fraud and Theft

The U.S. Department of Justice (DOJ) published four recent press releases related to cryptocurrency enforcement actions. According to one of the press releases, the developer of “Mutant Ape Planet” NFTs, who is a French national residing in the United Arab Emirates, has been charged with a $2.9 million fraud scheme. The press release alleges that the developer executed a “rug pull,” which is similar to a “pump and dump” scheme in which the developer made false representations of the benefits of the NFTs and, once all the NFTs were bought, stopped communicating with purchasers, withdrew the purchasers’ funds from the company’s cryptocurrency wallets, and used the funds for his personal use.

A second DOJ press release announced conspiracy, wire fraud, and money laundering charges against additional cryptocurrency Ponzi scheme promoters related to U.S. v. Francisley da Silva et al., 22 Cr. 622 (AT) (SDNY). The first promoter is alleged to have tried to conceal the fraud by laundering defrauded funds through shell companies and making large personal purchases. The second promoter is alleged to have presented himself as the company’s CEO but was in reality a paid actor. The second promoter is a Spanish national and the U.S. government is seeking his extradition.

A third DOJ press release announced that Nikhil Wahi has been sentenced in the first criminal action brought alleging a cryptocurrency insider trading scheme. Wahi was sentenced to 10 months in prison and ordered to pay $892,500 in forfeiture after he pleaded guilty to one count of conspiracy to commit wire fraud. Wahi allegedly obtained from his brother, who was an employee of Coinbase, confidential information regarding which assets would be listed in advance of the listings, used the information to purchase cryptocurrency that was soon to be listed on the exchange, and at times sold the crypto after listing for a profit.

A fourth DOJ press release announced that Gary Harmon pleaded guilty to wire fraud and obstruction of justice for unlawfully taking over 712 bitcoin that had been seized by law enforcement pending criminal forfeiture. The press release states that Harmon knew the government was trying to recover bitcoin stored on his brother’s device for forfeiture and that he used his brother’s credentials to recreate the bitcoin wallets that were stored on the device and transferred approximately $4.8 million worth of bitcoin to his wallets and through online mixers.

For more information, please refer to the following links:

CFTC Action Alleges Digital Asset Market Manipulation on DeFi Exchange

In a recent press release, the Commodity Futures Trading Commission (CFTC) announced a civil enforcement action charging an individual with a fraudulent and manipulative scheme to unlawfully obtain over $110 million in digital assets from a decentralized digital asset (DeFi) exchange, marking the first enforcement action against an exchange of this type. The CFTC alleges that the individual used “oracle manipulation” to misappropriate over $110 million in digital assets by creating two anonymous accounts on the DeFi exchange to artificially pump the price of the DeFi exchange’s underlying token, MNGO. According to the press release, the individual rapidly purchased substantial quantities of MNGO on three separate exchanges that were “oracles” (oracles provide decentralized exchanges with a data feed to determine the value of assets based off a larger input of data). As a result, the price of MNGO jumped thirteen times its previous value for a short period of time, resulting in an artificial inflation of value, at which time the individual then sold MNGO. The individual has also been charged by the U.S. Department of Justice.

According to a recent report, a novel method of service has been used by the court-appointed liquidators in a major cryptocurrency hedge fund case; they tweeted subpoenas to the founders “requesting that they produce documents and information for the recovery of assets as part of bankruptcy proceedings in New York and the British Virgin Islands.” Lack of cooperation from the founders has made it difficult for the court to engage them in the bankruptcy proceedings, but the report notes that they “frequently post on Twitter and occasionally make media appearances.” The U.S. Bankruptcy Judge approved the service of the subpoenas through email and a redacted version on Twitter given the lack of cooperation in the case.

For more information, please refer to the following links:

New Data Released on Crypto Crime Threats; Wallet Provider Warns of New Scam

Blockchain analytics firm Chainalysis published two recent blog posts providing details on cryptocurrency crime trends. According to one of the blog posts, in 2022, “illicit transaction volume rose for the second consecutive year, hitting an all-time high of $20.1 billion” with 44 percent of illicit transaction volume in 2022 coming from activity associated with sanctioned entities. Among other things, the blog post notes the following: “[t]ransaction volumes fell across all of the other, more conventional categories of cryptocurrency-related crime, with the exception of stolen funds, which rose 7% year-over-year”; “[o]verall, the share of all cryptocurrency activity associated with illicit activity has risen for the first time since 2019, from 0.12% in 2021 to 0.24% in 2022”; and “illicit activity in cryptocurrency remains a small share of overall volume at less than 1%.”

A second Chainalysis blog post discusses “how the U.S. government’s crypto-related sanctions strategy has evolved over time, examine[s] the types of entities that it has sanctioned so far, and analyze[s] the impact of those sanctions on the entities themselves and the wider crypto crime ecosystem.” Among other things, the blog post provides a table that displays “the individuals and entities with cryptocurrency nexuses sanctioned in the U.S. in 2022, along with the reason OFAC sanctioned them.”

According to recent reports, the provider of MetaMask, a popular Ethereum self-custodial wallet provider, recently issued a warning to MetaMask users of an “‘address poisoning scam,’ where attackers ‘poison’ transaction histories by sending users tokens worth $0 to their wallets.” The scammers reportedly use wallet addresses that match the first and last characters of the victim’s wallet address to lure victims into sending cryptocurrencies to the wrong “copycat” address. The scam apparently targets MetaMask users who have gotten into the habit of copying their wallet address from their transaction history. MetaMask users are reportedly cautioned to check every single character of wallet addresses before initiating transactions.

For more information, please refer to the following links: