WSJ Investigation: DWF, Binance, and The TRON Foundation

Sophon's $60M Node Sale | Jeff from Hyperliquid

Marco Manoppo & Karon Pangestu
May 10, 2024

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Good Morning.

Crypto Twitter timeline has been buzzing in the past 48 hours. iykyk. Anyway, BTC continues to be range-bound while alts remain relatively boring except for a few tokens that rallied thanks to certain catalysts.

In Today's Email:

What Matters: WSJ on DWF and Binance 🕵️
Founders Highlight: Jeff from Hyperliquid 📈
Deal Flows: Sophon’s $60M node sale 🖥️

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Narratives: options are looking attractive the longer we go sideways.

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WHAT MATTERS

WSJ Report: Binance, DWF, and TRON

DWF

State of play: According to a WSJ report, Binance dismissed its top investigators after they alleged that DWF Labs engaged in $300M worth of wash trading in 2023. DWF Labs has denied these accusations.

In late 2023, a Binance surveillance team alleged that DWF Labs manipulated the prices of the YGG token and six others and recommended removing the client.
DWF Labs makes $4B+ in monthly trades on Binance.
After that, Binance investigated its surveillance team and the evidence they presented, finding it insufficient.
A week later, Binance fired the team's head while rejecting the request to remove DWF Labs.
Binance claimed it had off-boarded ~355,000 users with a combined trading volume of $2.5T for platform violations in the last three years.

YGG, a token invested in by DWF, collapsed in price shortly after DWF dumped the tokens following a “shill tweet” by its managing partner, Andrei Grachev.

In December 2023, The Block reported that DWF Labs offered services to inflate token prices and generate artificial trading volume.
Grachev is the former head of Huobi's Russian arm, now HTX, who was advised by Justin Sun, who leads the Tron Foundation.
Binance off-boarded Tron Foundation following charges against Sun and the foundation for market manipulation and wash trading in 2023.
Despite the Tron Foundation's alleged market manipulation, Binance made TrueUSD a 'zero-fee' base asset for various trading pairs.
The market cap of TrueUSD collapsed as Binance shifted to other stablecoins, like First Digital USD.

Why it Matters: The WSJ report suggests there might have been a special relationship between Binance, DWF Labs, and the Tron Foundation.

For builders and investors: Don’t underestimate the amount of work and maintenance that needs to go into a live token.

Structuring a market-maker deal and choosing the right partner to engage with is a key decision that needs to go into every TGE. Capital markets operations should be a real division in your team.

BUILDER-INVESTOR HIGHLIGHT

Jeff Yan of Hyperliquid

Intro: Jeff Yan is the Founder of Hyperliquid, an L1 with performant native components, including a perps DEX with 100+ assets and spot trading.

Previous background: Before Hyperliquid, Jeff founded Chameleon Trading, a crypto HFT firm.

Jeff is a Harvard graduate with degrees in Mathematics & Computer Science.
Jeff began his career at Hudson River Trading, a high-frequency trading firm. He also interned as a Software engineer at Google.
After he left Hudson River Trading, Jeff built an L2 exchange protocol but shut the project down after a few months, according to a podcast.

The big idea: Through Hyperliquid, Jeff seeks to simplify crypto trading by increasing transparency, lowering costs, and improving execution efficiency, with the goal of becoming a trusted futures trading platform.

To achieve this, Hyperliquid opted to build their own L1 instead of relying on the scaling solutions that other blockchain networks provide.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our list of 500 crypto VC individuals 👇

INSIGHTS

US House Votes to Overturn SEC Crypto Custody

❝

Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto assets would introduce substantial financial instability and market uncertainty

Biden Administration

The House passed Joint Resolution 109 with a 228-182 vote on Wednesday to overturn SEC’s SAB 121. The measure now heads to the Senate, facing a potential veto from Biden's administration.

The Biden administration released a statement that argued that limiting the SEC's ability to regulate crypto assets could lead to significant financial instability and market uncertainty.

Issued in April 2022, SAB 121 mandates that digital asset custodians record liabilities and corresponding assets for custodied crypto on their balance sheets to mitigate risks in safeguarding these assets.

The SEC clarified that SABs are not enforceable rules and don't require public notice or comment, but they guide staff interpretations and practices.
All voting House Republicans supported passing the joint resolution, and 21 Democrats also supported the measure.
In December 2023, Gensler defended SAB 121 as merely a staff accounting bulletin consistent with U.S. bankruptcy court precedents.

DEAL FLOWS

Sophon Raised $60M in Node Sale

Sophon

Deal flows slowed down a bit this week, we saw $160M+ in deals 💼

Sophon, an entertainment-focused blockchain ecosystem, successfully raised over $60M through a node sale.

Sophon is built as a rollup network atop the Ethereum blockchain using technology from zkSync.
So far, Sophon has sold 123,507 of the 200,000 network nodes offered, netting ~20,855 ETH ($63.3M).
There is a 12-month restriction on transferring nodes.
A source told CoinDesk that VC firms likely purchased most of the nodes.
Sophon previously raised $10M in a round led by Paper Ventures and Maven 11, with contributions from Spartan, SevenX, and OKX Ventures.

Click here for the details on Sophon’s node sale.

Deal flows in the past week:

Crestal, $2M Pre-Seed Round
Inference Labs, $2.3M Pre-Seed Round
AgriDex, $5M Pre-Seed Round
Ambient, $2M Seed Round
Arch Network, $7M Seed Round
Botanix Labs, $8.5M Seed Round
Lagrange, $13.2M Seed Round
ZKM, $5M Pre-Series A
Galaxis, $10M Private Round
Arbelos Markets, $28M Private Round
Telos, $1M Strategic Round
Zeal, $2M Strategic Round
Arcium, $5.5M Strategic Round
Lava Foundation, $11M Strategic Round
Sophon, $60M Node Sale

QUICK BITES

DCG reports revenue growth.
BlockFi to shut its web platform.
Espresso partners with Polygon Labs.
Kraken asks court to dismiss SEC claims.
WisdomTree launches crypto business in NY.
Blockworks acquired The Breakdown podcast.
FINTRAC fines Binance C$6M over AML violations.
Marathon Digital misses Q1 revenue expectations.
Neel Somani steps back from Eclipse amidst allegation.
Taiwan's proposed AML changes could impose jail time.
Grayscale withdraws its Ethereum futures ETF application.
Ledn saw a record $690m in Q1 lending as the market snapped back

NOTEWORTHY READS

Archetype’s read on verifiable compute.
Multicoin Capital’s read on the dawn of Bitcoin programmability.
Arnav’s Musings’ read on Berachain: a memetic playground or DeFi utopia?

Omg legit dying lmao, just walked out of office and saw this 😂😂😂. Legitimately incredible
— Bryan Pellegrino (臭企鹅) (@PrimordialAA)
8:33 PM • May 9, 2024

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.