Galaxy’s $1 Billion Solana Coup | Elizabeth Warren’s ‘Shrinking Iceberg’

The asset manager’s new short-term credit fund is hosted on the Ethereum blockchain.

 
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FTX’S SOLS LIGHT UP GALAXY’S BALANCE SHEET
Most former retail customers of FTX are in line to get back the dollar value of their investments plus interest from the time the crypto exchange went belly up in November 2022, but that is not as good a deal as it sounds: digital assets were severely depressed at the time. Current FTX management, operating the company under bankruptcy protection, is not looking at the situation through a crypto lens. CEO John Ray and his staff are liquidating the digital assets they have found in the company to pay off creditors and  “have destroyed in excess of $10 billion, in my opinion,” says Sunil Kavuri, a former FTX customer who had more than $2 million on the exchange. “The major costs would be solana.”

Designed as an alternative to the ether blockchain, solana was championed by Sam Bankman-Fried, the FTX founder, who told Forbes in 2021 that he was “basically” a “fanboy.” The allure was solana’s potential to process hundreds of thousands or even millions of transactions a second. Bankman-Fried loaded up on the blockchain’s sol token, and current management found about 59 billion of the coins by August 31, 2023, when they were worth about $20 each, up from $15 around the time of the FTX bankruptcy. Starting in October, sol took off and is now quoted at $166. 

That’s not doing FTX’s former customers much good. In September, the crippled exchange hired billionaire Michael Novogratz’s Galaxy Digital Holdings to help manage the crypto pile. The sols had a problem, most of them could not be sold right away, they could only be liquidated in monthly batches between 2025 and 2028. That created a high-return possibility for investors with patience and deep pockets. The plan was to sell off the sols in several transactions, and when the winners of the first batch in a March sale were announced, Galaxy, it turns out, was not only the auctioneer but one of the buyers as well. It paid $620 million to purchase what would have been 9.7 million sols if it paid the same $64 per token as other buyers. At current prices, the tokens are worth $1 billion more than that, and Galaxy also participated in the second of three auctions. In both cases, the sols were put into a fund that Galaxy is managing for a 1% annual fee.

FTX tells Forbes that the participation of Galaxy on both ends of the auctions was approved by the bankruptcy court and that the firm paid at least as much as other bidders. Should creditors be upset? Rob Hadick, general partner at the Dragonfly venture-capital firm, says “It’s not unheard of, or even that uncommon, for an investment bank to participate in multiple parts of a sale or liquidation event, like what happened here.” He adds, however, “It’s clearly bad optics that will raise eyebrows from any creditor committee…Things like unfair access to information and disincentivization of robust price discovery are valid concerns."

Read the full story: This Crypto Billionaire’s Fund Could Reap More Than $1 Billion From The FTX Bankruptcy

SALAME BECOMES FIRST SBF ASSOCIATE TO GET PRISON TIME
Former FTX executive Ryan Salame was sentenced to seven and a half years in prison, federal prosecutors said, months after pleading guilty to campaign finance and unlicensed money transmitting charges. He became the first associate of Sam Bankman-Fried to be imprisoned in connection with the spectacular failure of the FTX exchange. Bankman-Fried is serving a 25-year sentence.

Salame, the former co-CEO of Bahamas-based affiliate FTX Digital Markets, was also sentenced to three years of supervised release and must pay more than $11 million in fines (more than $6 million in forfeiture and more than $5 million in restitution), according to prosecutors. Salame conspired with Bankman-Fried and employees at FTX, Alameda Research and an entity referred to as North Dimension to “transmit FTX customer funds without a license” and also conspired with Bankman-Fried and fellow FTX executive Nishad Singh to make campaign contributions that hid Bankman-Fried’s association with the donations, prosecutors said.

Three other former executives—FTX cofounders Singh and Gary Wang, as well as former Alameda Research CEO Caroline Ellison—also pleaded guilty to various financial crimes. The three have yet to be sentenced.

CURRENT PRICE OF TOP 5 COINS (7-Day % Change)
CoinPricePercent Change
Bitcoin (BTC) $67,553
2.3%
Ether (ETH) $3,788
1.3%
Tether (USDT) $0.9987
0.2%
Binance Coin (BNB) $594
1.2%
Solana (SOL) $166
1.2%
Sources: Forbes Digital Assets, CoinGecko. Prices as of 5:00 p.m. on May 31, 2024.
 

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ELIZELIZABETH WARREN’S CRYPTO-OPPOSITION BLOC IS A ‘SHRINKING ICEBERG’
J. Christopher Giancarlo, former chairman of the U.S. Commodity Futures Trading Commission, knows his way around Washington. He also was a member of the U.S. Financial Stability Oversight Committee, the President’s Working Group on Financial Markets and the Executive Board of the International Organization of Securities Commissions. He also knows digital assets, having overseen the advent of bitcoin futures at the CFTC, and he recently joined the board of Paxos, a blockchain-centric financial-services company. He tells Steven Ehrlich, editor of the Forbes CryptoAsset & Blockchain Advisor newsletter, that U.S. opposition to crypto is fading fast, as evidenced by the Senate’s overruling the SEC on an anti-crypto accounting rule known as SAB 121. Some excerpts from that interview:

“In the area of crypto, notwithstanding spectacular frauds like Sam Bankman-Fried and what seems to be kind of coordinated efforts at suppression by the Biden administration, Bitcoin continues to grow in its durability and its usage. So decentralized tokens, systems of value continue to grow. The current U.S. position of resistance and suppression is an outlier. I think it's an outlier in global development.

“I think it's an outlier in America’s historical receptivity to innovation. And it's an outlier in American politics because it seems to be confined not just to one party because there are a lot of Democrats who are very open to this despite a small but vocal minority that oppose it. And it's unsustainable."

“I think it says that the Elizabeth Warren wing is a shrinking iceberg. When the Senate majority leader Chuck Schumer signs the
rebuke of 121, that's a pretty good statement. Now, Machiavelli might say he can sign it because he knows the White House will veto it, but I think it's a pretty good rebuke, and you have to think that the banks are supportive of that as well. Notwithstanding some parts of the banking system that may be resistant to digital asset innovation, forcing them to reserve a hundred percent against their holdings effectively means banks can't be a player in this innovation. I think the rejection of this is there. So the White House may veto this, but I think it puts them in an increasingly untenable position against the tide of history, against the tide of innovation.”

“It's a generational divide as well. I think this view of anti-crypto armies is an octogenarian point of view that the next generation up just doesn't have this innovation. One of my favorite authors is Doug Adams, who wrote the Hitchhiker's Guide to the Galaxy series of books. Adams has a quote, which I'm going to mangle here, but it basically says, ‘Anything that's invented before you turn 35 is super cool, worthy of enormous amounts of time and attention, and might be the vocation for the rest of your life. But anything that comes about after you're 35 is a dangerous suspect that needs to be suppressed.’ ’’

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