The arrest heard ‘around the crypto world – TechCrunch

Hello everyone, and welcome back to Chain Reaction.

Last week we discussed $4.5 billion in new crypto funds from a16z. This week we’re talking about the arrest where everyone in NFT space is sweating bullets.

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crimes of the future

The crypto space has moved so fast in recent years that builders generally seemed to believe that existing rules didn’t apply to them. Well, after years of snail-paced legal action, it seems that US prosecutors are beginning to feel it’s time to challenge that perception.

This week, the US Attorney’s Office in New York’s Southern District arrested and charged a former OpenSea executive who used his position to lead NFT projects that would be featured on the market’s homepage. Community members discovered his actions by tracking his activities on public blockchains.

I would have loved to rant about this on the podcast, but the news broke while we were recording, so I’ll leave you some thoughts here.

The arrest was kind of a huge shock to people in the NFT space who generally believed that Nate Chastain had acted unethically, but that it couldn’t be “insider trading” because NFTs weren’t securities. This is a framing that has been held by many, including Chastain’s boss at OpenSea who fired him.

“I think there’s been a misrepresentation as insider trading. We don’t consider NFTs to be financial assets, so that doesn’t apply. That’s a very specific term for something very specific,” OpenSea told Devin Finzer in September to Decrypt.

There are an awful lot of people who read the SDNY press release very carefully, stating that it specifically accused Chastain of “wire transfer fraud and money laundering in connection with a scheme to engage in insider trading of non-replaceable tokens.” Specifically, they describe NFTs as “digital assets” later in release. It’s also worth reiterating that this is the DOJ – not the SEC – that is charging him, although it is the Bureau’s Securities and Commodities Fraud Task Force that is handling this case.

Why do crypto people not want NFTs to be classified as securities? Well, there are many existing regulatory guidelines out there, and most believe that it would actually shake up the industry if NFTs were unilaterally subject to securities laws; it would certainly raise the barrier to entry for creating NFTs and curtail many of the experiments now taking place in space.

Another major reason why it would be bad for NFTs to be treated as securities is that it would mean that a lot of people have been doing illegal things for a very long time.

The NFT space has endured this latest crypto bull run without any meaningful regulation amounting to it. With NFT volumes starting to show signs of slowing down, there are fears that more regulation is just around the corner.

the latest pod

What’s up, here’s Anita to give you a sneak peek at the latest episode of our Chain Reaction podcast where we unpack the latest web3 news block by block for the crypto-curious.

This week we talked about Coinbase’s new approach to what can be one of the most terrifying aspects of business: its performance rating. Our colleague, Amanda, wrote about how the crypto exchange is trying to rival Ray Dalio’s hedge fund, Bridgewater Associates, by letting employees give each other real-time feedback and ratings. Is this part of technology’s descent into a Black Mirror-style reality? Tune in to hear our thoughts.

We also summarized two recent crypto comeback stories, one from the founder and CEO of OnlyFans who left the company after trying to ban sexually explicit content from the platform and another from the architect of the highly unstable stablecoin, Terra.

Our guest this week was Outdoor Voices founder Ty Haney, who shared details about her pivot from athleisure to crypto with her new venture, Try Your Best. Haney broke the news on our podcast that the startup has just landed its second round of institutional funding.

Subscribe to Chain Reaction on Apple, Spotify, or your alternative podcast platform of choice to keep us updated every week.

Follow the money

Where seed money moves in the crypto world:

New York-based blockchain startup Digital Asset acquired a strategic investment of unknown size from Japanese banking giant SBI Holdings. InfStones, a blockchain infrastructure provider, took $66 million in a round led by SoftBank and GGV. Indian music NFT startup FanTiger has bagged $5.5 million for its seed round led by Multicoin Capital. LivingCities, a metaverse-focused social startup co-founded by Foursquare founder Dennis Crowley, has raised $4 million in early funding led by DCVC. Zimbabwe’s FlexID received an undisclosed amount of funding from Algorand for its blockchain-based sub-bank identity system. Web3 augmented reality gaming company Jadu has raised $36 million for its Series A led by Bain Capital Crypto. VillageStudio has raised $2.3 million in an Animoca Brands-led round for its NFT-based Playken avatars. Web3 Payments API Merge received $9.5 million in seed funding led by Octopus Ventures. GoSats, an India-based bitcoin rewards platform, has raised $4 million in a pre-Series A round of funding from investors including Y Combinator, Accel and Gossamer Capital. DAO management platform Utopia Labs closed a $23 million Series A led by Paradigm.

the week in web3

It’s been an unusually quiet week in web3 and our team members in the US took the time to enjoy the rare, quiet long weekend. Still, some great personalities caused a furore in the space, both for better and for worse.

OnlyFans founder Tim Stokely is turning to crypto after he left the company in December last year following controversy over his push to ban sexually explicit content from the platform. Anita wrote about the new “family-friendly” NFT startup he’s launching with another former OnlyFans exec, which will allow people to buy, sell and trade virtual cards featuring influencers and celebrities. NFT platform OpenSea fired Nate Chastain, the head of product, in September after being accused of leading trades on the platform. Now he has been arrested and charged with insider trading; Luke has the details.

added analysis

Here are some crypto analyzes from this week that you can read on our subscription service TC+ (written by Jacquelyn Melinek of TC):

VC Funding for Crypto Projects Dropped in May, But Many Investors Remain Optimistic
VC funding in crypto has fallen month-on-month from April to May, but many investors are not worried. “For investors like us, it’s time to buy,” Stan Miroshnik, partner and co-founder of 10T Holdings, told TechCrunch. The pace of capital deployment can be more measured as both investors and founders become more calculated, but VCs will still have a robust amount of activity, Miroshnik said. While there may be gloomy sentiment in the digital asset markets, true crypto-native funds will continue to invest heavily, Saurabh Sharma, head of investment at Jump Crypto, told TechCrunch.

If crypto becomes more mainstream, can it stay decentralized?
Be it new cryptocurrency buyers or those learning more about NFTs, Bitcoin and the general crypto ecosystem, there is an upsurge in crypto awareness worldwide. But as it gains momentum, regulators worldwide will continue to monitor the space more closely, but the headline speaks for itself: What does this mean for the future of crypto? A number of founders and industry executives weighed in.

Old Bitcoiner Dan Held Says This ‘Crypto Winter’ Won’t Be As Hard As Others
As crypto markets remain bearish, some longtime market participants, such as Dan Held, director of growth marketing at crypto exchange Kraken, are not worried. While there is much talk of a crypto winter circulating through the community, Held said sentiment for this current market cycle is different. While he – and many others – endured major market cycles over the years, the stories have changed a lot, thanks to more prominent institutional players and massive amounts of capital entering the space.

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