$320 million down the drain?

Good morning. Today we've got one of the biggest DeFi hacks on record, Winter Storm "Landon", a tough day at the office for Meta, and more!

Bonus Content Coming Soon: I'm close to having my notes out from Messari's Crypto Theses for 2022. I'll include a link to my notes in this newsletter, however, the full report is definitely worth a read. The report is now in podcast form and can be found here.

Market Update (as of 8:20am ET):

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Top 5:

1. Wormhole Suffers Exploit, Loses $326M. The protocol, which serves as a bridge between other blockchains, confirmed the loss of 120,000 ETH and has apparently reached out to the hacker with an offer of $10 million for return of the funds and details on the exploitation. If the funds are not returned, there may be further ramifications in DeFi markets where wrapped ETH was pledged as collateral on other blockchains. Given the size of the theft, the wrapped ETH may no longer have "real" ETH backing it which could result in insolvency for lenders who accepted the wrapped ETH as collateral. Some are speculating that Jump Capital, a major Solana and Wormhole investor, will step in to backstop the hacked ETH and support the protocols. This is the second major hack of a cross-chain protocol in the last week.

What is a blockchain bridge? A blockchain bridge, or cross-chain bridge, allows you to use a cryptocurrency like ETH on a separate blockchain such as Solana that does not natively support ETH tokens. Example: if I have 5 ETH but want to use a DeFi application on the Solana blockchain, I would need to lock in my 5 ETH on a protocol like Wormhole. The protocol would then issue me 5 "wrapped" ETH on the Solana blockchain that I could spend, lend, etc. on any Solana based protocols.

SSS (sat-sized summary): Wormhole, a cross-chain protocol, lost ~$320 million dollars in a hack. The implications to the broader DeFi market are unclear at the moment, but the massive loss of collateral could result in lenders who accepted wrapped ETH being insolvent. Cross-chain bridges continue to be an exploitable target for hackers.

2. FTX puts seed funding to use in acquisition. The company is in the process of acquiring Liquid Group, a Japanese fintech that runs one of the country's first regulated crypto exchanges. FTX, which recently raised a $400 million round of funding, is pushing into Asian markets with this acquisition and clearly taking aim at Binance, the most popular exchange in the world. FTX has a past relationship with Liquid Group who they provided with a $120 million loan after a hack of Liquid Group's digital wallets last year. Details of the deal have not yet been released, but I'm interested to see where the next stop is on the FTX spending spree.  

SSS: FTX, the world's second largest cryptocurrency exchange, is acquiring Liquid Group, a Japanese fintech that runs a crypto exchange in the country. FTX has grown rapidly over the past year and is well capitalized to expand their platform in the coming months.

3. First weather related challenge for Texas based miners. Winter Storm Landon (since when did we start naming winter storms?), is expected to plow its way into Texas as soon as today, presenting the first major test for Bitcoin miners and the much maligned Texas power grid. Critics have pointed out that mining puts additional stress on an already stretched power network, while mining proponents have argued that miners serve as energy grid load balancers and that they can scale down operations during periods of high demand. That scale down appears to be happening for some mining companies. Riot Blockchain announced earlier this week that the firm had cut energy use by 98% in anticipation of the storm and Compute North, a data center company that provides crypto mining services, has said they are prepared to shut down their 11-megawatt mining facility if needed. The performance of the Texas power grid during this storm, good or bad, could impact the future of mining in the state.

SSS: A major winter storm in Texas is expected to drive energy demand up more than 42% over the next 24 hours. Some crypto miners have already powered down mining facilities or pledged to do so if needed in response to the storm. If the power grid performs poorly, crypto miners should prepare themselves to catch the blame.

4. MetaMask to expand offerings after acquisition. ConsenSys, the blockchain infrastructure company that developed MetaMask, has acquired the open source crypto wallet MyCrypto. The acquisition puts ConsenSys in the position "to create a product that supports desktop, mobile and browser-based wallets." MetaMask has also recently expanded their institutional offerings with a built-in custodial solution that allows multi-chain connectivity for Ethereum, Binance Smart Chain, Polygon, and Avalanche.

SSS: ConsenSys has acquired MyCrypto, in an effort to expand its current crypto wallet capabilities. The acquisition comes shortly after ConsenSys announced new support for institutional clients including a custody solution with multi-chain connectivity.

5. Meta is in it for the long haul. Which is a good thing, because their newly created Facebook Reality Labs (FRL) division, which encompasses the augmented and virtual reality offerings, lost $10.2 billion in 2021. On today's earnings call, the company also said that it expected FRL's operating loss to "increase meaningfully" in 2022 as the group pursues ventures in the metaverse, which include hardware offerings like augmented reality glasses and virtual reality headsets.

SSS: Meta's metaverse division lost a big chunk of change in 2021 as the company pursued new initiatives in the metaverse. While investor reactions were not positive, Meta is making a long-term play and its too early to know how things will shake out.

Top Sharers of the Crypto Top 5:
1. Donna Y. - Nashville, TN
2. Jake Y. - Greenville, SC
3. Forrest H. - Evansville, IN

External Resources:
1. Cryptopedia from Gemini - if you see a word, acronym, or phrase in this newsletter that you don't understand, there's a good chance you can find an explanation here
2. Crypto Explainer+ - intro level courses on Bitcoin, Ethereum, decentralized finance, NFTs, and more

Disclaimer: The information contained in this newsletter shall not be understood or construed as financial advice. I am not an attorney, accountant or financial advisor, nor am I holding myself out to be, and the information provided is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.