In Token Issue this week, we round up the latest updates and discuss what FTXâs collapse means for the broader crypto industry. [Read from your browser]( Token Issue Welcome to Token Issue! Delivered every Friday, this free newsletter breaks down the biggest stories in Asiaâs crypto scene and beyond. View past issues [here]( or [sign up here]( to receive future newsletters. Written by Shihan Fang
Crypto journalist Hi {NAME} The rise and fall of FTX, once the worldâs third-largest crypto exchange, is now [officially]( the subject of the next Michael Lewis book. The author behind The Big Short and Moneyball had been embedded within FTX for the last six months until the companyâs collapse last week. Central to the plot is a group of [10 allegedly polyamorous millennials]( led by FTXâs 30-year-old frontman, Sam Bankman-Fried, all living together in a penthouse in the Bahamas. (FTXâs in-house counselor disputes the orgiastic nature of the cabal, [testifying to the New York Times]( that the team was âundersexed, if anythingâ and [later told Vice]( that part of his job was finding external dating options for the FTX team.) There are also supporting characters to this story: The CEO of sister company Alameda Research and on-off girlfriend of Bankman-Fried, 28-year-old Caroline Ellison, has been well and truly doxxed, revealing herself to be a fan of Harry Potter, [amphetamines, and polygamy]( [CTO Gary Wang]( and director of engineering Nishad Singh were also in the cabal, but have been more careful with their digital footprints, evading the scrutiny of online sleuths on the hunt for blood. Closer to home, COO Constance Wang, a graduate of the National University of Singapore, has been panned for holding a C-suite position at FTX, having only been an analyst at Credit Suisse before her stint at the crypto firm. Her pleas for [more centralization among crypto exchanges]( at Token2049, in retrospect, foreshadowed the storm that was to come. Everyone loves a tale of a fallen hero. But Dan Friedberg, FTXâs chief regulatory officer and former lawyer at poker platform Ultimate Bet (UB), appears to be a villain who is yet to emerge. In 2008, players on UB were cheated out of US$50 million by UBâs owner Russ Hamilton, who had [âGod-Modeâ access]( to the cards of all UB players. [Poker media has unearthed]( Friedbergâs role in covering up the scandal and helping Hamilton evade legal sanctions. Other UB lawyers who have since found new shops to ply their trade include [Stuart Hoegner]( who now works in the regulatory compliance department of stablecoin issuer Tether, and Sanford âSandyâ Millar, who runs a law firm specializing in crypto. [Short-selling investor]( Marc Cohodes called FTXâs bluff on financial research channel Hedgeye TV [nearly a month ago]( (jump to 34:40 to see him rip the firm apart) and in a [follow-up interview on Tuesday]( revealed that he had alerted Bloombergâs crypto team in London of FTXâs shenanigans in July but was rebuffed. âThey donât want to piss off SBF (Bankman-Fried) because they need access, and they passed. And it was ridiculous, and it really pissed me off,â says Cohodes.
 What the f*ck happened? [Last week]( Binance scrapped an FTX bailout after a due diligence investigation that lasted all of 24 hours, and then FTX stopped all withdrawals before filing for bankruptcy. Over the weekend, US$600 million was siphoned off from FTX wallets - likely by an FTX employee. The embezzler has since [converted US$48 million of that into Ether]( and was 35th among the top holders of the cryptocurrency, as of Tuesday. Another US$400 million worth of FTT, FTXâs native tokens, was unexpectedly released into circulation that same weekend, prompting Binance and Huobi to block all deposits of FTT. âBinance has stopped FTT deposit, to prevent potential of questionable additional supplies affecting the market,â tweeted Binanceâs boss Changpeng Zhao. Zhao has not fully explained why Binance dropped the FTX deal. However, piecing together reports from both financial and crypto media, it appears that FTX was overleveraged and had not disclosed the entirety of its business relationship with Alameda, a trading firm. Seeing how Bitcoin prices varied wildly between trading platforms and countries, Bankman-Fried first started Alameda in 2017 to conduct Bitcoin arbitrage trading. The success of Alameda - which sometimes made US$1 million a day, according to its founder - then financed the launch of FTX in 2019. Bankman-Fried ceded control of Alameda to Ellison officially in October 2021 but remained the key decision maker at the trading company. In 2022, FTX spun off a VC fund, FTX Ventures, armed with a war chest of US$2 billion. As FTX has [raised less than US$2 billion to date]( it is likely that FTX Ventures was financed at least in part by FTT tokens. [As per CNBC]( Alameda had been borrowing money over the last two years to finance its trading and investments. This year, when the crypto market entered bear territory following the US$60 billion implosion of Terra, Alameda did not adjust its risk profile accordingly. Rather than strengthening its reserves or reducing debt (a typical strategy for companies in a bear market), the company chose to extend financing to several failing crypto firms, including a US$500 million line of credit to Voyager Capital in June. Alameda also bought some of these struggling firms at fire-sale prices. This included spending US$25 million to acquire BlockFi, which is likely to file for bankruptcy by next week. Bankman-Fried had clearly overextended himself. When Alamedaâs lenders asked for their money back, the company didnât have enough cash on hand, prompting the FTX team to secretly transfer US$10 billion in FTX funds, including customer deposits, to the ailing Alameda. [Reuters reports]( that at least US$1 billion from that transfer is now missing. While that alone is in clear violation of US securities laws, FTX was also riddled with a number of accounting irregularities. The firmâs balance sheet comprised several tokens that the firm had created itself, including US$2.2 billion in Serum tokens and US$600 million in Maps tokens. Thereâs another US$8 billion of mysterious liabilities labeled under âHidden, poorly internally labeled âfiat@â account.â Bloomberg columnist [Matt Levine]( has a long and rather satisfying take on it. Retired investment professional [Jorge Velez]( also has a deep dive into the complex borrowing and lending mechanics between FTX and Alameda, explaining how Alameda deposited FTT tokens (that it had secretly received through Bankman-Friedâs backdoor) on FTX and used them as collateral to borrow customer assets to pay back its loans. The fallout from the FTX collapse has criminal implications for all who were living in that Bahamas penthouse. Using the Terra investigation as reference, any criminal lawsuit against FTX and its founders could take years to resolve. Terra founder Do Kwon has been wanted by Interpol since September and has shown no signs of cooperating with authorities. Absence of regulatory oversight The impact of the FTX crash has larger repercussions in the US, where crypto regulation falls within the remit of several government agencies, including the Federal Reserve, US Treasury, and the Securities and Exchange Commission (SEC). The SEC has not commented on FTX yet, but Fox News reported that SEC chairman Gary Gensler [had a private meeting with Bankman-Fried]( in March this year to discuss an idea for a new SEC-approved cryptocurrency trading platform. FTX [donating US$72 million to the Democratic Party]( during the 2021-2022 US election cycle may have played a part in Genslerâs decision to meet with the crypto exchangeâs founder while pushing on with the market regulatorâs two-year lawsuit against [crypto payments firm Ripple](. Back home, the Monetary Authority of Singapore (MAS) has dusted its hands off FTX, saying that the exchange did not have a license to operate in the city-state. While this didnât stop institutional and retail investors from accessing the platform remotely, it implies that they would have to do so at their own risk. In the absence of regulatory oversight, the crypto industry is now attempting to restore faith in the market. At least 11 crypto exchanges have promised to declare details of their holdings. South Korean exchange [Korbit]( was the first to do so, publishing details of its reserves on Wednesday. Ten exchanges - Binance, Gate.io, KuCoin, Poloniex, Bitget, Huobi, OKX, Crypto.com, Deribit, and Bybit - announced last week that they could publish their reserves in a [Merkle treeÂ]( [Binance]( and [Crypto.com]( have since published their wallet addresses, which are now available for analysis on Nansen. Others, like Australia-based [Independent Reserve]( are taking more time to publish a complete report. Adrian Przelozny, co-founder and CEO of Independent Reserve, tells Tech In Asia that the exchange is aiming to have its proof of reserve ready by early next year. âIt is not simple to do correctly and we donât want to release a rushed solution that just shows a list of assets on blockchain addresses like some other exchanges have done,â he says, adding that the company has been audited annually for three years by global auditing firm BDO. Meanwhile, Binanceâs Zhao - now the owner of the largest crypto exchange in the world by far - is [preparing a recovery fund]( to help strong crypto projects tide over the crisis. Whatâs next for crypto? With the crypto winter now getting colder, the crypto industry is bracing for the countless changes on the horizon, including further regulatory tightening, interest rate hikes, and more weeding out of businesses that donât have strong fundamentals. But it would be a mistake to characterize decentralized finance as all there is to crypto, or more broadly, Web3. If the days of unbridled financial speculation are over, it could finally pave the way for better use cases to emerge and for investors to invest their money wisely. If youâve made it this far down the newsletter, the Big Story this week highlights the impact of the FTX fiasco in Singapore. Scroll down to âTo the Starsâ to read about the three crypto use cases - carbon crypto, crypto payment rails, and digital-asset ownership - that Iâm most optimistic about. â Shihan
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THE BIG STORY [Singaporeans feel âbetrayedâ by Temasek-backed FTX]( Several investors put money in FTX after being lured by Temasekâs stamp of approval. Theyâre now wondering if the investment company did enough due diligence before funding the exchange. Temasek has since marked down [its FTX investment to $0](. The Singapore investment major poured US$210 million into FTX International for about a 1% stake and US$65 million into FTX US for a roughly 1.5% stake.
 --------------------------------------------------------------- â TO THE STARS A look at whatâs pushing Web3 forward Carbon crypto now supported by the World Bank
The World Bank is launching a global registry for carbon credits in December called the [Climate Action Data Trust (CAD Trust)](. The Singapore-headquartered platform will be powered by the [Chia Network]( a public blockchain founded by BitTorrent creator Bram Cohen. Chia is based on a consensus mechanism called proof of space-time, a modified version of proof of work (PoW) which is less energy intensive but retains the security characteristics of PoW. Pay with USDC via Apple Pay
[Apple Pay customers can use USDC]( to make payments, bringing the traditional and crypto payments systems one step closer. USDCâs issuer Circle says the initiative is especially powerful for crypto-native businesses as it can enable customers to buy crypto with Apple Pay on their preferred exchange. Digital asset ownership
Yat Siu, chairman of Hong Kong-based Animoca Brands, has been campaigning for digital asset ownership and not even the FTX fallout can stop him. In a [LinkedIn post last weekend]( he criticized âa very few irresponsible actorsâ for derailing the Web3 vision of making the internet decentralized and free from central power structures. To be clear, while digital asset ownership has so far involved mostly overpriced simian profile pictures, the potential for non-fungible tokens goes beyond that. With several video game majors now wading into blockchain gaming, we can expect to see NFTs being deployed in much more interesting ways next year.
 --------------------------------------------------------------- ð TO THE MOON Tokens, NFTs, and yield generators weâre noticing [WazirX co-founderâs Layer 1 blockchain raises $18m]( [Shardeum]( which was established by a key person behind India's largest crypto exchange by trading volume, now counts Spartan Group as an investor. With plenty of new L1 blockchains getting sizable backing, Shardeum stands out with its employment of a new form of [sharding]( thatâs easier to scale up as more people use it. --------------------------------------------------------------- ð BACK TO EARTH The weekâs biggest roadblocks [ASX drops blockchain project after 2 years]( The Australian Securities Exchange has abandoned the long-anticpated replacement of its core trading systems at a cost of around A$255 million. Despite the write-off, ASX said it can still use some of the tech developed. [Crypto broker Genesis halts withdrawals in wake of FTX collapse]( In a series of tweets, the company said that FTX had âcreated unprecedented market turmoil,â leading to âabnormal withdrawal requestsâ that have surpassed its current liquidity. The broker also said that the default of bankrupt hedge fund Three Arrows Capital was detrimental to the liquidity and duration profiles of its lending arm, Genesis Global Capital. Genesisâ demise could be significant because of its institutional clients. Itâs also [the lending partner]( of major crypto exchange Geminiâs Earn program.
 --------------------------------------------------------------- STILL A PONZI SCHEME The dark underbelly of Web3 and crypto today This is something you NEED to read. Exclusive info that we discovered. No one else has this. We know at least in part who the puppet master is: DAN FRIEDBERG â Ben Armstrong (@Bitboy_Crypto) [November 13, 2022]( Dan Friedberg, the chief regulatory officer (CRO) of FTX who was a part of online poker platform UltimateBet (UB), has been keeping a low profile since the exchangeâs collapse. Our opening commentary goes into his dubious past. To date, Friedberg is the only member of the FTX team to have direct involvement in fraud. [Commentators on crypto Twitter]( have pointed out similarities between UB betting against its own players and FTX. Some even allege that he may have been secretly pulling the strings of the entire operation. --------------------------------------------------------------- MORE TO CHEW ON 1ï¸â£Â [SGâs ADDX raises $20m in round led by Koreaâs KB Securities]( The private market exchange has secured US$20 million in a pre-series B extension round led by KB Securities, a subsidiary of South Koreaâs KB Financial Group. The new capital injection comes on top of the US$58 million that ADDX initially raised in May. 2ï¸â£Â [Korea launches probe into Terra co-founder Daniel Shinâs fintech firm]( Chai Corporation, the company founded by Shin, has been raided by South Korean authorities. The Seoul Southern District Prosecutorsâ Office is looking into the companyâs launch of its Terra payment services, which may have involved using its customersâ personal data without consent. 3ï¸â£Â [Singapore-based crypto exchange Bitget opens operations in Brazil]( The platform has integrated with Pix, the countryâs instant payment system, and enabled crypto purchases with Brazilian reals. Users can make withdrawals in the local currency by the end of November.
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