UAE strengthens regulatory oversight of virtual asset service providers

Hodlnaut to proceed to liquidationCryptocurrency lender Hodlnaut, based in Singapore, is set to undergo liquidation, according to former interim judicial managers, Aaron Lee and Angela Ee.The High Court of Singapore has lifted the protection order it had put in place in respect of the business and efforts to restructure it in August 2022. The decision, formalized with a winding-up order filed on Friday in the High Court, follows a period of trading in 2022 when the company incurred losses of approximately $189 million due to the collapse of the Terra ecosystem in May 2022.The liquidators, tasked with providing regular updates to the more than 17,000 creditors, will oversee the process. Hodlnaut’s crypto assets, amounting to $13.3 million, were locked on FTX before the exchange froze withdrawals and declared bankruptcy last November. Despite a rejected restructuring plan earlier this year, the creditors opted for liquidation, deeming it more favorable to their interests. Aaron Lee and Angela Ee will now act as the appointed liquidators, overseeing the winding-up process under the Insolvency, Restructuring and Dissolution Act of 2018.Photo by Hu Chen on UnsplashCreditors favored liquidationAt an early stage, Hodlnaut founders Simon Lee and Zhu Juntao were in favor of a business sale as a preferable alternative to liquidation. Back in February, there appeared to be some potential of a sale, with several buyers having indicated an interest in the business. The identity of these interested parties was never revealed and the interim judicial managers of the restructuring process later confirmed that no “white knight” had emerged to buy out the business.It became clear in April of this year that creditors preferred liquidation as opposed to attempting to restructure the business. The Algorand Foundation is a leading creditor, with a $35 million exposure to Hodlnaut. In a court filing in April, the Algorand Foundation, alongside other leading creditors Samtrade Custodian Limited and S.A.M. Fintech Pte Ltd., were noted as being opposed to a restructuring.OPNX bidIn August it emerged that controversial crypto claims trading platform OPNX, owned by Three Arrows Capital’s (3AC) Kyle Davies and Su Zhu alongside Mark and Leslie Lamb from CoinFLEX, was mounting a bid for Hodlnaut.OPNX had proposed to provide a capital injection of $30 million. The proposal outlined that this investment would be made in the form of FLEX tokens, the native token of the CoinFLEX platform.Following consideration by the interim judicial managers overseeing Hodlnaut’s restructuring process, it decided not to take up the offer. It was decided that the FLEX tokens had a speculative value and that they were highly illiquid.Additionally, no clear timeline had been provided by OPNX in respect of the repayment of creditors’ debts. Furthermore, the proposal was found to be scant on detail, particularly with regard to payments which were limited to 30% of liabilities. In August the FLEX token experienced a large drop, falling 90% in value.

U.S. crypto fund targets Asian investors for new $800M growth equity fundDan Tapiero, the New York-based founder of 1RoundTable Partners and 10T Holdings, is on a mission to raise between $700 million and $800 million for his upcoming fourth fund, with a recent focus on Asian investment interest.A recent report by Deal Street Asia pointed out that Tapiero has turned his attention to the potential of inward Asian investment, not least through his recent one-week business trip to the region in early December.Photo by Towfiqu barbhuiya on UnsplashInvestment vehicles1RoundTable Partners was Tapiero’s original investment vehicle, positioning itself as a growth equity fund building a portfolio focused exclusively on growth-stage blockchain and crypto projects. 10T Holdings was established more recently, targeting mid to late stage digital asset ecosystem (DAE) firms as part of its equity fund. Earlier this year, 10T was reported by Bloomberg to have $1.2 billion under management while seeking another $200 million in new funding.10T Holdings has fully deployed its three previous funds, forming a portfolio of 24 active DAE companies, including Gemini, Animoca Brands, Yuga Labs and Deribit. Tapiero’s cautious approach to valuations has been rewarded. He turned down opportunities in FTX and Celsius Network at their peaks prior to both entities failing spectacularly in 2022.Crypto equity fund resilienceThe crypto industry faced challenges, including the collapse of FTX, leading to tighter regulations and reputational damage. Venture investments in the sector saw a decline, with statistics from Galaxy Digital Holdings indicating that Q3 2023’s venture investments were below $2 billion, the lowest since Q4 2020.Tapiero is undeterred and is actively raising his fourth growth equity fund, focusing on “digital asset ecosystem (DAE) companies.” This fund, managed under 1RoundTable Partners, will primarily invest in mature DAE companies with $40–50 million in annual revenue and a market valuation exceeding $400 million. Tapiero’s strategy of targeting lower-risk, growth-stage opportunities aligns with his hedge fund legacy.Asian investor focusTapiero is actively seeking new investors in Asia for Fund IV, targeting a first close in Q1 2024. His efforts are focused on addressing the lack of growth-stage capital, particularly in Asia, where confidence in digital assets has strengthened due to crypto-friendly regulations.The veteran macro investor, who founded Gold Bullion International in 2009 prior to turning his attention to the digital assets space, sees a window of opportunity in the secondary market. Having already invested about $660 million through 10T Holdings, he notes that investors may have only a “six-month window” to capture discounted opportunities.In an interview with Bloomberg earlier this month, Tapiero outlined his view that Q4, 2023 will be the crypto sector’s “best quarter since the bull market.” He added:“We think that the bear market finished in Q4 2022. We had a sideways move for a while and then in July [2023] things sparked off with Larry Fink’s [BlackRock CEO] comments.”As Tapiero navigates the crypto landscape with a strategic focus on growth and risk management, his approach appeals to traditional investors, including major pension funds. Fund IV represents a step toward contributing to the ongoing evolution of the digital asset ecosystem. It’s on that basis that the investment industry veteran is targeting Asian limited partnerships (LPs).

Singaporean Researchers Devise More Effective DAO VotingResearchers at the Singapore University of Social Sciences have come up with a more efficient governance model for decentralized autonomous organizations (DAOs).Photo by Shubham Dhage on UnsplashDAO governance reviewThe scientists presented their work via a paper titled “Voting Schemes in DAO Governance,” which was published earlier this week. The paper is due to appear in the Annual Review of Fintech in due course.The research paper initially sets out with a review of the different forms of voting currently used to affect DAO governance in the various early stage projects that are already up and running. Having taken a deep dive into existing approaches, the research team of Qinxu Ding, Weibiao Xu, Zhiguo Wang and David Kuo Chuen Lee decided that they could go one better themselves.Their review encompassed eight current approaches including the following: token-based quorum voting, knowledge-extractable voting, conviction voting and reputation-based voting. Each voting scheme was then evaluated based on the following factors:Efficiency: An assessment of the speed at which proposals are selected and approved.Fairness: Each voter should have equal rights to vote.Scalability: The degree to which storage, computation and communication needs can be adjusted relative to the number of voters.Robustness: An assessment of the relative resistance of the voting scheme to attacks and collusion.Incentive Schemes: The extent to which DAO members are motivated to vote.Following on from that analysis, the scientists put forward a hypothetical voting mechanism with design considerations relative to fully decentralized and permissionless DAO governance. When it came to ratings, the holographic consensus approach scored highest, with a “high” rating in the categories of efficiency, fairness and robustness, dropping down to medium when it came to scalability. None of the other approaches came close.In trying to go one better, the team took the holographic consensus approach and set out to create their own hypothetical voting mechanism based on this model. As evidenced from the paper, they tried to effect improvements to this approach:“We know that the downside of the conviction voting mechanism is that it takes time to approve an urgent proposal. To address this concern, we introduce a blind betting mechanism: each member could choose whether to bet on any proposals with a certain number of their tokens.”The researcher’s hypothetical model allows stakeholders to gamble their tokens on the likelihood of a proposal passing or failing. The logic with this approach, they claim, is that it would speed up the governance process, while making it more robust at the same time.In concluding remarks, the researchers acknowledged that all approaches were not without their pros and cons. They point out that the further development of DAOs shouldn’t be confined to a static organizational future. While they believe that their own hypothetical scheme is in theory superior, they acknowledge that it too has flaws. With that, the realities of implementing it in the real world may be a challenge.